Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (May 6 – May 10)

BoE and RBA meetings coupled with employment data from Canada and trade data from China will highlight the week ahead of us.

USD

Employment Cost Index (ECI) for Q1 showed growth of 1.2% q/q vs 1% q/q as expected and up from 0.9% q/q in the Q4 of 2023. The number came in at 4.2% y/y, down from 4.8% y/y in Q1 of 2023, but it is still highly elevated. Fed is considering ECI to be one of the best indicators of overall wage pressures and as it is seen going up it will spark debates of much stickier inflation.

Treasury funding announcement for the Q2 saw a $41bn larger borrowing than stated in January of 2024. The reason was lower cash receipts. Treasury expects to borrow, issue Treasuries, in the amount of $243bn with end TGA balance of $750bn. Expectations for Q3 are for a $847bn borrowing with a TGA balance of $850bn at the end of the quarter.

ISM manufacturing PMI for the month of April returned to contraction after briefly moving to expansion in March and printed 49.2 vs 50 as expected. The details show drops in new orders and production while prices paid jumped above the 60 level indicating growing inflation pressures. ISM services PMI also dropped into contraction and printed 49.4 vs 50 as expected and down from 51.4 the previous month. This is the first time since December of 2022 that the reading dipped below the 50 level. New orders dropped but remained in expansion while new export orders dropped into contraction. Employment index fell deeper into contraction while prices paid component rebounded heavily after dropping in March which will bring up concerns about inflation pressures boiling.

Fed has left Fed funds rate unchanged in 5.25 - 5.50% range as was widely expected. The statement showed that economy continued to expand at a solid pace but "there has been a lack of further progress toward the Committee's 2 percent inflation objective." Regarding inflation the statement showed that "The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." There will be a reduction in QT "...monthly redemption cap on Treasury securities from $60 billion to $25 billion." Expectations were for a reduction to $30bn. Fed remains data dependent and Inflation remains the most important data point that Fed will monitor.

At the press conference Powell has stated that Fed is not satisfied with 3% inflation adding that it is unlikely that the next move in rates will be a hike, he repeatedly pushed against the rate hike. When pressed about rate cuts he stated that there would have to be significant weakening of labor market and added that couple of tenths in the unemployment rate probably wouldn't do it. He thinks that monetary policy is restrictive and he will need “persuasive evidence” to prove to him that it is not tight enough.

March jobs report was the first in a long time that missed expectations. Headline NFP number showed 175k jobs added vs 243k as expected. The unemployment rate ticked up to 3.9% while participation rate remained the same at 65.7%. Underemployment, U6, also ticked higher and printed 7.4%. Wages rose 0.2% m/m compared to 0.3% m/m the previous month and 3.9% y/y vs 4.1% y/y in March. Private education and healthcare services continues to be the biggest contributors adding 95k of the 175k total, but leisure & hospitality and government are much weaker than has usually been the case over the past 18 months. Private jobs added 16k while government jobs added 8k. Powell has noted that significant weakening of labor market is needed for rate cuts and this report could mark the beginning of that weakening.

The yield on a 10y Treasury started the week at 4.67%, rose to 4.69% and finished the week at around 4.50%. The yield on 2y Treasury started the week at 5% and reached the high of 5.05%. Spread between 2y and 10y Treasuries started the week at -33bp then tightened to -31bp as curve proceeded to bear steepen. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at June meeting at 86% while probability of a rate cut is around 14%. Probability of a July rate cut sits at around 42%.

EUR

Preliminary Eurozone CPI for the month of April saw headline number unchanged at 2.4% y/y as expected but core CPI fell by less than expected as it printed 2.7% y/y, down from 2.9% y/y in March while a drop to 2.6% y/y was expected. Monthly reading saw increase of 0.6% which makes it a fourh consecutive year of 0.6% m/m inflation increases in April. German CPI came in unchanged at 2.2% y/y vs 2.3% y/y as expected with French CPI also printing 2.2% y/y. These numbers indicate that bringing inflation all the way to the 2% target will go slower than expected. However, this will not deter ECB from cutting in June. Preliminary Eurozone GDP for the Q1 came in at 0.3% q/q and 0.4% y/y vs 0.1% q/q and 0.2% y/y as expected. All of the four major economies (Germany, France, Italy and Spain) beat expectations and had Q1 GDP surprised to the upside.

GBP

Final manufacturing PMI for the month of April was revised up to 49.1. Services and composite PMI readings were slightly upgraded to 55 and 54.1 respectively, up from 53.1 and 52.8 in March. The report shows improvements in business and consumer spending which led to increases in activity and new orders. Business expectations for the next year are upbeat.

This week we will have BoE meeting and preliminary Q1 GDP data. With inflation staying high but projected to decline much faster than in other countries we could see BoE to start to prepare the terrain for a June cut, although August is what markets are pricing as we will get more data points by then. Sticky services inflation may prove to be the reason why they opt for an August as the first rate cut date.

Important news for GBP:

Thursday:​

• BoE Interest Rate Decision​

Friday:​

• GDP​

AUD

Official April PMIs saw manufacturing come in at 50.4 as expected, down from 50.8 in March while services recorded a big drop to 51.2 from 53 the previous month while expectations were for a 52.2 reading. For the manufacturing sector new orders and new export orders remained above 50 while employment index remained in contraction. Production index made a decent jump and there was a surge in prices paid index indicating inflation pressures. For the services sector employment and new business components remained below 50 and business expectations index declined. Composite was thus dragged to 51.7 from 52.7 in March. Caixin manufacturing increased to 51.4 in April from 51.1 in March.

This week we will have RBA meeting as well as trade and inflation data from China. With inflation staying stubbornly high and labor market still holding tight RBA will not make any moves at this meeting.

Important news for AUD:

Tuesday:​

• RBA Interest Rate Decision​

Thursday:​

• Trade Balance (China)​

Saturday:​

• CPI (China)​

NZD

Business confidence continued to deteriorate as April printed 14.9, down from 22.9 in March. The biggest drops were seen in overall activity, all sectors declined as well as in employment category. Residential construction and profit expectations also posted big drops. Pricing intentions component grew but slight positive is that inflation expectations inched lower.

Q1 employment report showed growing weakness in the labor market. Employment change was -0.2% q/q vs 0.3% q/q as expected. The unemployment rate rose to 4.3% from 4% in Q4, higher than 4.2% as expected, while participation rate dropped to 71.5% from 71.9% in the previous quarter. Wages have declined a bit but are still very elevated with Labor cost index at 0.8% q/q and 3.8% y/y. The impact of high interest rates is weighing down on the labor market.

CAD

February GDP reading printed an increase of 0.2% m/m vs 0.3% m/m as expected. Manufacturing growth was negative while service industries posted a 0.2% increase. Advanced March reading sees GDP coming in flat.

BoC Governor Macklem stated that there is a limit on how much rates between US and Canada can diverging adding that it is unlikely that rates will go down to the pre-pandemic levels. He added that core inflation is expected to ease gradually and that cut in rates will signal that inflation is moving towards the 2% target.​

This week we will have employment data.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

Early hours of Monday saw USDJPY jump to the 160 level and then finally intervention happened. The pair was pushed down below the 155 level. It has bounced after that but as the London session started it was pushed back below to the 155 level. Ultimately the pair crossed the 158 level. After the FOMC meeting that weakened the USD, BoJ took advantage and again intervened in the market pushing the pair below the 152 level.

Final manufacturing PMI for the month of April was revised down to 49.6 from 49.9 as preliminary reported, but still a good jump from 48.2 in March. The report showed slower decline in output and new orders, they are still below 50. New export orders also declined due to weak foreign demand while input prices increased as weak JPY pushed up prices.

CHF

SNB total sight deposits for the week ending April 26 came in at CHF475.7bn vs CHF481.3bn the previous week. April inflation data saw headline CPI come in at 1.4% y/y vs 1.1% y/y as expected and up from 1% y/y in March. Core CPI also rose as it printed 1.2% y/y vs 1% the previous month. The numbers are still well below the 2% target so SNB will not be phased by these data points. CHF has gained strength after the inflation report.​

 

[katetrades]

Forex Major Currencies Outlook (May 13 – May 17)

Inflation and consumption data from the US will take the center stage followed by employment data from Australia, activity data from China and preliminary Q1 GDP from Japan.

USD

Minneapolis Fed President Kashkari stated that he would not rule out a hike though the bar for it is high adding that multiple positive inflation readings would be necessary before a cut. He also acknowledged that a weakening situation in the labour market could also spur cuts. He put two rate cuts at the March SEP and he may lower that to zero or one. Kashkari is one of the biggest hawks on the FOMC committee. Initial jobless claims jumped to 231k from 209k the previous week. The market took this as a big sign of weakness in the labour market and USD lost ground.

The yield on a 10y Treasury started the week at 4.50%, rose to 4.52% and finished the week unchanged at around 4.50%. The yield on 2y Treasury started the week at 4.83% and reached the high of 4.83%. Spread between 2y and 10y Treasuries started the week at -31bp then widened to -37bp as curve inverted further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at June meeting at 92% while probability of a rate cut is around 18. Probability of a July rate cut sits at around 37%.

This week we will have inflation and consumption reports. Headline inflation number is expected to remain unchanged at 3.5% with core inflation ticking down to 3.5% while retail sales are expected to decline compared to March report.

Important news for USD:

Wednesday:​

• CPI​
• Retail Sales​

EUR

Final Eurozone services PMI for the month of April was revised up to 53.3 from 52.9 as preliminary reported on the back of strong readings across all countries with Spain being the notable outperformer (56.2). The print shows heightened optimism as shown by business expectations and that businesses managed to successfully pass their costs onto consumers. Composite has risen to 51.7 from 51.4 as preliminary reported and 50.3 in March indicating that Eurozone economy is moving further into expansion. French composite PMI reading jumped into expansion with 50.5 reading for the first time since May of 2023. A strong start to the second quarter as indicated by the PMIs.

ECB Chief Economist Lane prepared the terrain for June cut by saying that their confidence on getting inflation lower is improving based on the preliminary data. He added that they are remaining data dependent and that will act in accordance with the incoming data. ECB policymaker De Cos stated that June will most likely deliver a cut but there was no commitment to a rate cut path beyond that. The Bundesbank Governor Nagel talked about structural factors that may keep inflation elevate in the coming years.

GBP

BoE has left the rate unchanged at 5.25% as was widely expected but the result of the vote was 7-2 opposed to 8-1 as was expected. Dhingra, as expected, voted for a rate cut, but this time he was joined by Ramsden. The statement shows that inflation will increase slightly in the H2 of 2024 due to the unwinding of base effects but it will return to close to 2% in the near-term. Members noted upside risks to the near-term inflation outlook from geopolitics. Services inflation has come down but it remains elevated. Monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates. “UK GDP is expected to have risen by 0.4% in 2024 Q1 and to grow by 0.2% in Q2”. The statement concludes with “Will consider forthcoming data releases and how these inform the assessment that the risks from inflation persistence are receding.” New projections saw lower inflation with CPI for at 2.6% in one year’s time vs 2.8% in February, 1.9% in two year’s time vs 2.3% in February and 1.6% in three year’s time vs 1.9% in February. Additional member voting for a rate cut and lower inflation projections give the statement dovish tone and GBP weakened.

BoE Governor Bailey stated during the press conference that June rate cut cannot be ruled out and that it is actually possible to cut more than the markets are pricing in. He added that restrictive monetary policy is working and that they are on a path to reducing inflation to 2%. He clarified that they are evidence based, data-dependent, that every new meeting will represent a new decision and that when they cut once monetary policy will remain restrictive. BoE Chief Economist Pill stated that they are more confident they can start to reduce rates but they are not there yet. He reiterated that decision to cut rates will be data-dependent and added that persistent parts of inflation are declining.

Preliminary Q1 GDP reading came in at 0.6% q/q vs 0.4% q/q as expected and up from -0.3% q/q in the Q4 of 2023. Services grew by 0.7% q/q, the production sector grew by 0.8% q/q while the construction sector fell by 0.9% q/q. Real household spending rose 0.2% q/q, real government consumption rose by 0.3% q/q while business investment rose by 0.9% q/q. Exports were down 1% while imports fell by 2.3%.

AUD

RBA has left the cash rate unchanged at 4.35% as was widely expected. Inflation remains a concern as it is moderating at a slower than expected pace. Persistence of services inflation remains a key uncertainty. As stated “The Board expects that it will be some time yet before inflation is sustainably in the target range and will remain vigilant to upside risks."The statement shows concerns around weakness of household consumption and Q1 retail sales data confirms this concern as it printed -0.4% q/q. RBA is still not ruling rate cuts or rate hikes.

RBA Governor Bullock stated at the press conference that rates are at necessary levels to bring inflation down to target. She commented that the bank has to remain vigilant on inflation risks and added that raising interest rates is not the base case but that they are prepared to do it if the need to. She clarified that board did discuss option of raising rates at the meeting but that at this moment it is more appropriate to observe how economy functions before making decisions.

April Caixin services came in at 52.5 as expected, slightly down from 52.7 in March. Composite, on the other hand, ticked up to 52.8 from 52.7 the previous month. The data shows economy expanding at a solid pace. April trade balance data showed widening of surplus to $72.35bn as exports rose by 1.5% y/y while imports rose 8.4% y/y. Auto exports were the biggest exports while high tech product category had biggest impact on imports. Exports growth to ASEAN countries continued to increase while exports to US and EU continued to struggle.

This week we will have employment data from Australia as well as production and consumption data from China.

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​

Friday:​

• Industrial Production (China)​
• Retail Sales (China)​

NZD

GDT index at the first auction of May saw increase of 1.8%. This makes it a third consecutive auction of raising dairy prices and it was led by the increase in Cheddar prices. Kiwi has managed to regain some ground against its neighbour AUD but the pair is still technically bullish.

CAD

April employment report was a stellar one. The economy added 90.4 jobs vs 18k jobs as expected. The unemployment rate stayed at 6.1% while a tick to 6.2% was expected and participation rate ticked higher to 65.4% from 65.3% in March. Wages rose 4.8% y/y, easing from 5% y/y increase the previous month. Full-time employment rose by 40.1k while part-time employment rose by 50.3k. Professional, scientific and technical services added the most jobs (26k). This report will make BoC reconsider their path and markets are pricing out rate cuts near-term which led to strengthening of CAD.

JPY

Cash earnings in the month of March rose by 0.6% y/y vs 1.8% y/y in February. When we take inflation into account, real wages have fallen by 2.5% y/y making it two years of falling real wages. Household spending has risen 1.2% m/m vs -0.3% m/m as expected. BoJ Summary of Opinions showed more members turning hawkish and advocating rate hikes to secure against the risks of inflation overshooting.

This week we will have preliminary Q1 GDP reading.

Important news for JPY:

Thursday:​

• GDP​

CHF

SNB total sight deposits for the week ending May 3 came in at CHF473.2bn vs CHF475.7bn the previous week. A small drop but within well-established range. Seasonally adjusted unemployment rate stayed at 2.3% in April as was expected.​

 

[katetrades]

Forex Major Currencies Outlook (May 20 – May 24)

UK inflation will be the most watched data point in a week that will also bring us RBNZ meeting, preliminary May PMI data from the Eurozone and the UK, inflation from Canada and retail sales from the UK and New Zealand.

USD

Fed Chair Powell described the current policy stance as restrictive by many measures and added that it is unlikely that the next move would be a hike, It is more likely that the Fed would keep rates unchanged. He pointed out that uncertainty remains and that confidence is lower than it was when heading into 2024. Powell added that he sees signs of gradual easing in the jobs market and he also expects inflation to move back down on a monthly basis.

April CPI came in line with expectations. Headline number was 3.4% y/y, tick down from 3.5% y/y in March while core CPI printed 3.6% y/y, down from 3.8% y/y the previous month. Monthly number was 0.4%, when taken to decimals it printed 0.313% vs 0.359% in March. Shelter component printed 0.4% m/m, same as in March while it declined to 5.5% y/y from 5.7% y/y the previous month. Services less rent and shelter, closely watched by the Fed, rose by 0.2% m/m vs 0.65% in March.

Retail sales disappointed in April as they came in flat vs 0.4% m/m increase as expected. Core group, excludes volatile categories and is used for GDP calculation, came in at -0.3% m/m vs 0.1% m/m as expected and down from 1% m/m in March. Consumer is off to a rough start in the second quarter. Ex autos category came in at 0.2% m/m as expected while ex autos & gas declined by 0.1% m/m.

The yield on a 10y Treasury started the week at 4.50%, rose to 4.51% and finished the week at around 4.42%. The yield on 2y Treasury started the week at 4.87% and reached the high of 4.88%. Spread between 2y and 10y Treasuries started the week at -37bp then widened to -41bp as curve proceeded to invert further after the CPI report. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at June meeting at 91% while probability of a rate cut is around 9%. Probability of a July rate cut sits at around 30% while September is at around 68%.

This week we will be getting minutes from the May FOMC meeting.

Important news for USD:

Wednesday:​

• FOMC Minutes​

EUR

Second estimate of Q1 GDP came in unchanged at 0.3% q/q and 0.4% y/y while Q4 GDP was revised down to -0.1% q/q thus showing that Eurozone was in a technical recession as growth was negative in both Q3 and Q4. ECB officials are pushing for a June cut but are very cautious of future rate cuts. Final April inflation reading saw no changes with headline number printing 2.4% y/y and core printing 2.7% y/y.

This week we will get preliminary May PMI data which should show small changes up as economic activity continues to improve in the Eurozone.

Important news for EUR:

Thursday:​

• S&P Manufacturing PMI (Eurozone, Germany, France)​
• S&P Services PMI (Eurozone, Germany, France)​
• S&P Composite PMI (Eurozone, Germany, France)​

GBP

April employment report saw payroll change decline by 85k after March reading was revised up to show a decline of 5k. ILO unemployment rate for the month of March ticked up to 4.3% while wages were unchanged at 5.7% 3m/y and 6% 3m/y when bonus is excluded. Labor market is softening which increases chances of a June rate cut.

BoE Chief Economist Pill spoke and reiterated that there is more work to be done on bringing inflation down but that there is good progress on it. He added that focus is on labor market, wages and services inflation and that BoE can cut rates and still stay restrictive. He characterized decision around June rate cut vs August rate cut as a close call.

This week we will get inflation and preliminary May PMI data. Markets are split 50:50 regarding June cut and this week’s CPI report will be of great importance as it can turn odds to the either side.

Important news for GBP:

Wednesday:​

• CPI​

Thursday:​

• S&P Manufacturing PMI​
• S&P Services PMI​
• S&P Composite PMI​

AUD

April employment report saw the unemployment rate jump to 4.1% from 3.8% in March. There was a slight increase in the participation (66.7% from 66.6%) rate but it was overshadowed by the big increase in the unemployment rate. Economy added 38.5k jobs but when we look at the composition of those jobs we can see that all of it was part-time jobs (44.6k) while full-time lost 6.1k jobs. Wage price index for Q1 saw wages continue to increase, although at a softer pace than expected. The numbers printed 0.8% q/q and 4.1% y/y vs 0.9% q/q and 4.2% y/y as expected and in previous quarter.

Over the weekend China CPI data for the month of April was published and it saw price increases of 0.3% y/y vs 0.1% y/y in March. Core CPI rose 0.7% y/y vs 0.6% y/y the previous month. PPI has remained in the negative as it printed -2.5% y/y, slower decline than -2.8% y/y in March, but markets were expecting stronger reading of -2.3% y/y. PPI has been in negative territory since October of 2022. Credit growth in China fell for the first time since 2017 as more government bonds were repaid than sold in the month indicating weak demand. These two factors, weak CPI and demand for credit, could spur PBOC into further easing. PBoC has left 1-year MLF rate unchanged at 2.5% as expected and injected additional injection of 125bn yuan. PBoC will lower rates on home loans by 25bp in order to spur up falling real estate market.

April activity data from China showed industrial production rise by 6.7% y/y, up from 4.5% y/y in March on the back of big increase in production of high tech products. Retail sales, on the other hand, came in at 2.3% y/y, down from 3.8% y/y the previous month. Auto sales were the biggest drag while sports & recreation category saw biggest increase. This composition indicates that growth will not come from consumption, from inside, but that China will focus more on production and exports to achieve its 5% growth target for 2024.

NZD

RBNZ has published new inflation projections for Q2. They see it coming down to 2.73% from 3.22% in one year’s time and to 2.33% from 2.50% in two year’s time. RBNZ sees two year period as a good representation of time period in which changes in policy have impact on the economy.

This week we will have RBNZ meeting and retail sales data. No changes are expected to the OCR as inflation is still running too hot for RBNZ liking.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

Thursday:​

• Retail Sales

CAD

Building permits plunged in March by 11.7% while housing starts dipped 1.6% m/m. Manufacturing sales in March posted a decline of 2.1%.

This week we will have inflation data and further declines are expected.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Q1 GDP data were abysmal. The economy shrank 0.5% q/q and 2% annualized compared to expected declines of 0.3% q/q and 1.3% annualized. In addition, Q4 reading was revised down so it showed no growth q/q and no growth annualized. Private consumption felt for the fourth straight quarter and printed -0.7% vs -0.4% in the previous quarter. Business investment dropped by 0.8% after it rose by 1.8% in Q4 of 2023. Net trade deducted 0.3pp from the GDP reading as exports fell by more than imports (-5% and -3.4%).

CHF

SNB total sight deposits for the week ending May 10 came in at CHF468.9bn vs CHF473.2bn the previous week. Deposits continue to hover in a well-established range.​

 

[katetrades]

Forex Major Currencies Outlook (May 27 – May 31)

PCE and preliminary CPI from Eurozone coupled with GDP from the US and Switzerland as well as official PMI data from China will highlight the shortened week ahead of us as we Monday will be a holiday in the US (Memorial Day).

USD

Fed Governor Waller stated that he wants to see more good data on inflation, several months more good inflation data. He added that monetary policy is restrictive enough and that further rate hikes will most likely not be needed. The economy is evolving along Fed’s expectations and there are no signs of inflation accelerating in the incoming data. Wallet, however, acknowledged that progress towards 2% inflation may be slower and added that probability of a recession seems to have disappeared.

FOMC minutes showed that it will take longer than previously expected for members to gain greater confidence that inflation is sustainably moving down to the 2% target. Many members expressed their concerns if monetary policy is restrictive enough. Almost all members agreed that it is appropriate to start slowing down the pace of QT. These more hawkish assessments along with much stronger than expected PMI numbers brought risk off mode again in the markets. USD strengthened and bond yields rose.

The yield on a 10y Treasury started the week at 4.42%, rose to 4.50% and finished the week at around 4.46%. The yield on 2y Treasury started the week at 4.84% and reached the high of 4.96%. Spread between 2y and 10y Treasuries started the week at -41bp then widened to -47bp as curve proceeded to invert further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at June meeting at almost a 100%. Probability of a July rate cut sits at around 18% while September is at around 56%.

This week we will have second estimate of Q1 GDP and Fed’s preferred inflation measure PCE which is expected to slide further.

Important news for USD:

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

Preliminary May PMI data showed improvement in the manufacturing sector to 46.7 from 45.3 while increase to 45.8 was expected. Both Germany and France saw their numbers improve. Services were unchanged at 53.3 due to a sharp drop in French reading which returned into contraction. Composite was lifted to 52.3 from 51.7 the previous month, but composite PMI for the French economy dropped below the 50 level indicating a drop in activity. The report shows that input and output prices in services sector declined compared to the previous month which will make ECB happy as they get more confident that their decision for a June rate cut is adequate. The negotiated wages index rose 4.7% y/y in in Q1, higher than 4.5% y/y increase in Q4 of 2023. Increase in wages will not deter ECB from June cut but it may slow down the pace of rate cuts and throw July out of the picture.

This week we will have preliminary May inflation data, headline expected to stabilize white core is seen dropping further.​

Important news for EUR:

Friday:​

• CPI​

GBP

April inflation report showed headline number drop to 2.3% y/y from 3.2% y/y in March. Expectations were for a further drop, down to 2.1% y/y. The biggest contributor to the drop in inflation was lowering of the energy price cap by 12%. The most concerning fact is that services inflation printed 5.9% y/y vs 5.5% y/y as expected indicating that inflation pressures in services sector are much stickier than BoE projected. Core CPI declined to 3.9% y/y from 4.2% y/y the previous month, but markets were expecting a 3.6% y/y reading. This report will significantly lower chances of a June cut, leaving August as the first month to expect a rate cut and on the back of that GBP rallied.

Preliminary PMI data for the month of May showed manufacturing PMI returning to expansion after a drop of last month and printing 51.3. It is a 22-month high for the reading and it showed a jump in output index. Services dropped to 52.9 from 54.7 in April, still a healthy reading but business activity index slumped. Composite was a victim of weak services and it printed 52.8, down from 54.1 the previous month. The report shows “The survey also brings welcome news of a cooling in service sector inflation, which is needed to open the door for the Bank of England to start cutting interest rates."

Retail sales for the month of April were a disaster as they show big declines across all measures with March readings being revised down. Headline number showed a 2.3% m/m decline while ex autos, fuel category declined by 2% m/m. Consumer is struggling. UK Prime Minister Sunak called for snap elections on July 4.

AUD

Minutes from the latest RBA meeting showed that members discussed whether to increase rates but opted for no change as it was appropriate to do so. They could not rule out either rate cuts or rate hikes. Risks surrounding inflation have increased, meaning it may take longer to return inflation down to their target. Minutes had a hawkish tone to them as they mentioned rate hikes several times (if forecasts proved to be overly optimistic the bank could hike rates).

PBoC has left 1-year and 5-year LPR rates unchanged at 3.45% and 3.95% respectively as was widely expected. Last week they have lowered rates on home loans by 25bp in order to spur up falling real estate market and more easing is expected during the year.

This week well have official PMI data from China.

Important news for AUD:

Friday:​

• Manufacturing PMI (China)​
• Services PMI (China)​
• Composite PMI (China)​

NZD

RBNZ had left the Official Cash Rate (OCR) unchanged at 5.5% but their projections and wording were hawkish. New projections see OCR at 5.54% in June 2025 vs 5.33% previously and 5.4% in September of 2025 vs 5.15% previously. They see the need for monetary policy to remain restrictive in order for inflation to return to their 1-3% target which will be achieved by the end of the 2024. Domestic services inflation pressures persist while wages and spending are easing. The committee stated that inflation has fallen slower than expected and they were discussing the possibility of a rate hike at this meeting. At the press conference Governor Orr sounded less hawkish than the tone of the statement which dampened NZD’s rise. During the week Governor Orr clarified that they are prepared to start cutting rates before inflation falls to 2%. Retail sales for the first quarter showed increase of 0.5% q/q vs -0.3% q/q as expected and up from -1.9% q/q in the Q4 of 2023 indicating that consumer is improving.

CAD

Inflation in April resumed its downtrend. Headline number printed 2.7% y/y as expected, down from 2.9% y/y in March. Food prices, services and durable goods led the declines, exactly what BoC wants to see. Gasoline prices rose m/m and if we would exclude them the drop in inflation would be even larger. All three core measures have declined further with median and common printing 2.6% y/y while trim printed 2.9% y/y. BoC will lean heavily towards cutting rates after this report and CAD is weakening. March retail sales only added to CAD woes as they showed headline number falling 0.2% m/m while ex autos plunged 0.6% m/m. One saving grace is that preliminary April reading is seen increasing 0.7% m/m but that reading is subject to revisions as more data is gathered.

JPY

Preliminary May PMI data saw manufacturing return to expansion territory for the first time since May of 2023 and print 50.5, up from 49.6 in April. Services dipped to 53.6 from 54.3 the previous month but with still healthy activity and deep into expansion. Composite improved slightly to 52.4 from 52.3 in March. The yield on 10y JGB has crossed the 1% level for the first time since 2013.

National CPI for the month of April saw headline number at 2.5% y/y, down from 2.7% y/y in March. Ex fresh food dropped to 2.2% y/y from 2.6% y/y the previous month while ex fresh food, energy component printed 2.4% y/y, down from 2.9% y/y in March. With inflation quickly dropping towards the 2% target the room for BoJ to further increase rates diminishes significantly.

CHF

SNB total sight deposits for the week ending May 17 came in barely unchanged at CHF467.4bn vs CHF468.9bn the previous week. The range for sight deposits seems to get tighter.

This week we will have Q1 GDP reading.

Important news for CHF:

Thursday:​

• GDP​

 

[katetrades]

Forex Major Currencies Outlook (June 3 – June 7)

ECB and BoC meetings, NFP, ISM PMIs, with inflation from Switzerland, GDP from Australia, employment data from Canada and trade data from China will highlight this news packed week ahead of us.

USD

Conference Board consumer confidence for the month of May rebounded strongly and printed 102 after 97.5 print in April. This sudden and big jump eased worries about weakening in labor market and its impact on consumer and caused yield curve to bear steepen as yields on longer-dated Treasuries rose faster than on the shorter-dated. The reading also pushed back rate cuts further while we think that first rate cut will come in September.

Second reading of Q1 GDP was revised down to 1.3% annualized as expected from 1.6% annualized as reported in advanced reading. Digging into the details there were drops in consumer spending and net exports (stronger USD is bad for exports) while government spending contributed more than preliminary reported.

PCE data for the month of April saw headline and core number both come in unchanged and in line with expectations (2.7% y/y and 2.8% y/y respectively). Monthly numbers saw headline increase by 0.3% while core rose by 0.2% vs 0.3% as expected (0.249% to the third decimal). Personal consumption rose just 0.2% m/m after downwardly revised 0.7% m/m in March while personal income rose by 0.3% m/m vs 0.5% m/m increase the previous month. Data coming in line with expectations gave boost to risk assets. Stock market rallied while USD declined.

The yield on a 10y Treasury started the week at 4.47%, rose to 4.63% and finished the week at around 4.51%. The yield on 2y Treasury started the week at 4.96% and reached the high of almost 5%. Spread between 2y and 10y Treasuries started the week at -48bp then tightened to -38bp after weak treasury auctions and jump in consumer confidence as curve proceeded to steepen. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at June meeting at 99% while probability of a rate cut is around 9%. Probability of a July rate cut sits at around 12% while September is at around 50%.

This week we will have ISM PMI and NFP data. Headline May NFP number is seen around 150k, lower than in April, with the unemployment rate unchanged at 3.9%.

Important news for USD:

Monday:​

• ISM Manufacturing PMI​

Wednesday:​

• ISM Services PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

ECB Chief Economist Lane stated that, in his opinion, they have brought inflation down in a timely manner and it is appropriate to start with rate cuts. He added that policy will need to remain restrictive but that within that restrictive territory there is room for a rate cut. Lane was just adding more fuel to the fire we all know by now and which is called June rate cut. Furthermore, he stated that there is a risk of easing monetary policy too quickly and that disinflation can be expected during the course of next year.

ECB survey saw inflation expectations continue to decline as consumers now see inflation at 2.9% in the year ahead which is the lowest since September of 2021. Additionally, inflation expectations for the three years ahead are seen at 2.4%. Although numbers are above the 2% target they are at least moving in the right direction which is satisfactory from ECB’s standpoint.

Preliminary Eurozone CPI for the month of May came in at 2.6% y/y vs 2.5% y/y as expected and up from 2.4% y/y in April. Core reading printed 2.9% y/y 2.7% y/y as expected and the month before. German CPI came in as expected at 2.4% y/y, up from 2.2% y/y in April while French CPI was unchanged at 2.2% y/y while increase to 2.4% y/y was expected. This tick up in inflation although unsettling will not deter ECB from cutting next week and will contribute to a “hawkish” cut, meaning that it will be questionable how many more rate cuts will there be this year.

This week we will have ECB meeting. Rate cut is fully priced in by the markets. We expect that there will be no clear path regarding further rate cuts laid out. ECB will stay data-dependent.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

GBP has had a mixed week as markets were digesting latest data. Inflation coming down, but still printing higher than expected, kept GBP elevated but worries around weak consumer, as shown by latest retail sales report, pushed it down. Ultimately, markets see BoE delivering first rate cut in August, rather than in June and that should keep GBP supported.

AUD

Monthly CPI reading in April surprised to the upside. The print came in at 3.6% y/y vs 3.4% y/y as expected and up from 3.5% y/y in March. The reading showed big 0.76 m/m increase and the huge increase in inflation was evenly distributed among components giving bigger cause for concern that inflation is sticky. RBA cannot be satisfied with this reading. Rate cuts have been delayed and based on that change in pricing AUD strengthened. As a reminder, monthly CPI does not include all of the CPI components, but still it does not paint a bright picture on the inflation front. Private CAPEX for Q1 came in at 1% q/q vs 0.5% q/q as expected and up from 0.8% q/q in the Q4 of 2023 on the back of increases in plant and machinery expenditures.

Official PMI data for the month of May saw misses on expectations. Manufacturing has returned into contraction with a 49.5 reading after a 50.4 in April. Details show declines in new orders and new export orders, both below the 50 level. Production index also declined but remained in expansion. Prices paid components increased indicating that inflation pressures are building. Services printed 51.1, a tick down from 51.2 the previous month, new orders and employment still in contraction, while composite dropped to 51 from 51.7 in April.

This week we will have Q1 GDP from Australia and trade data from China.

Important news for AUD:

Wednesday:​

• GDP​

Friday:​

• Trade Balance (China)​

NZD

May business survey saw business outlook decline further to 11.2 from 14.9 in April. The biggest declines were seen in commercial construction, employment intentions and ease of credit. Declines in pricing intentions and inflation expectations are positive signs and although the first number is still elevated at least it is moving in the right direction.

CAD

Preliminary wholesale trade data for the month of April showed a rebound as they grew by 2.8% m/m after dropping 1.1% m/m in March. Q1 GDP showed growth of 1.7% annualized vs 2.2% annualized as expected while GDP of Q4 2023 was revised down to 0.1% from 1% annualized. Details show growth in both household consumption and business investment but it was much lower than expected.

This week we will have BoC meeting and employment data. We expect BoC to cut rates by 25bp as inflation, growth and consumption are coming down while the unemployment rate is going up. Additionally, majority of mortgages in Canada are variable and thus higher interest rates cause mortgage expenses to go up lowering disposable income. If BoC proceeds with a cut it will widen the gap between Canada and US rates which will cause CAD to weaken and that could cause a concern for policymakers who may opt to vote for no change and wait for Fed to cut first.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

PPI services for the month of April came in at 2.8% y/y, up from 2.3% y/y in March. The reading is also called Corporate Services Price Index as it reflects prices corporations pay. BoJ has stated that this is the fastest increase in reading in almost ten years. If these price increases are fully transferred to consumers it may lead to more sustainable inflation pressures. That is what BoJ is looking for in order to normalize monetary policy.

Inflation in the Tokyo are in the month of May reversed its course and started moving up. Headline number came in at 2.2% y/y vs 1.8% y/y in April. Ex fresh food component rose to 1.9% y/y vs 1.6% y/y the previous month while ex fresh food, energy printed as headline number (2.2% y/y vs 1.8% y/y in April). Back above the 2% target for the headline and “core-core” and combination of weak JPY and higher wages could move inflation further above the target in the future. April retail sales rebounded and posted a 1.2% m/m and 2.4% y/y increase. Ministry of Finance announced that they have spent JPY9.8 trillion in the markets to strengthen JPY. If we take average price of USDJPY during that period we get intervention of around $65bn.

CHF

SNB total sight deposits for the week ending May 24 came in at CHF461.2bn vs CHF467.4bn the previous week. Continued decline but only towards the bottom of the well-established range. SNB Chairman Jordan stated that risk of higher inflation is small and added that weak Swissy is the main reason for higher inflation. If the risks increase SNB could sell foreign currency in order to prop up the value of Swissy and fight inflation that way. Q1 GDP surprised to the upside as it showed growth of 0.5% q/q vs 0.3% q/q as expected.

This week we will have inflation data.

Important news for CHF:

Tuesday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (June 10 – June 14)

FOMC and BoJ meetings followed by inflation data from the US and China will be the highlights of the week ahead of us that will also see employment data from the UK and Australia.

USD

ISM manufacturing PMI for the month of May came in at 48.7, down from 49.2 in April while a 49.6 print was expected. New orders plunged deeper into contraction printing only 45.4. Production also recorded a drop and barely managed to stay above the 50 level. Employment index and new export orders returned to expansion with both printing 51.1 while prices paid component fell by more than expected, but it is still at elevated level of 57.

ISM services PMI came in at 53.8 in May vs 50.8 as expected and returned to expansion after a 49.4 reading in April. The rebound was led by production index which jumped to 61.2 from 50.9 the previous month. Even bigger gain was seen in new export orders which rose into expansion with a 61.8 print after a 47.9 reading in April. New orders also improved as did employment, but the latter still remained in contraction. Prices paid component declined but with a print of 58.1 it shows that inflation pressures are still very high.

May NFP reported blasted expectations as it printed 272k vs 185k as expected. The unemployment rate, though, ticked up to 4% while participation rate dropped to 62.5%. Wages rose 0.4% m/m and 4.1% y/y both higher than expected (0.3% m/m and 3.9% y/y). Private education and health was again the biggest contributor with 86k jobs added followed by government with 43k and leisure and hospitality with 42k. Combination of high main number and much higher wages pushes back first rate cuts and USD strengthened on the back of that.

The yield on a 10y Treasury started the week at 4.50%, rose to 4.51% and finished the week at around 4.44%. The yield on 2y Treasury started the week at 4.88% and reached the high of 4.90%. Spread between 2y and 10y Treasuries started the week at -37bp then tightened to -44bp as curve proceeded to steepen. The 2y10y is inverted for over twenty three months. FedWatchTool sees the probability of no change at June meeting at 99% while probability of a rate cut is around 1%. Probability of a July rate cut sits at around 9% while September is at around 54%.

This week we will have May inflation data, expected to remain unchanged and FOMC meeting. Markets are pricing no hike for this meeting so the main attraction will be the new Summary of Economic Projections (SEP). This new SEP will show us whether Fed members still see three cuts for the year or if they have revised their forecast to two cuts this year.

Important news for USD:

Wednesday:
Fed Interest Rate Decision
EUR

Final manufacturing PMI for the month of May was revised down to 47.3 from 47.4 as preliminary reported on the back of negative revision to French reading and weak Italian print. German reading was unchanged while Spanish was a bright spot printing 54. Still, the reading is highest since March of 2023 and could be a turning point for Eurozone. Final services and composite were revised slightly to the downside and they now read 53.2 and 52.2. Composite represents a twelve month high indicating economic recovery which is supported by stronger demand and better business confidence.

ECB has cut interest rates by 25bp bringing deposit rate to 3.75% as was widely expected. The Governing Council remains adamant to bring inflation down to 2% target in a timely manner. Rates will stay restrictive for as long as it is necessary as bank continues to follow a data-dependent and meeting-by-meeting approach. There will be no pre-commitment to any rate path. New projections see headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. Core inflation is seen at an average of 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026. GDP is expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026. Both headline and core inflation were revised up for 2024 and 2025.

During the press conference, Lagarde stated that one member was against the cut (Holzman) and emphasized that ECB is not pre-committng to any rate path and the need for data-dependent approach and still restrictive rates. The decision leaves no room for another cut in July but we could see the next cut at September meeting.

GBP

Final manufacturing May PMI came in at 51.2 vs 51.3 as preliminary reported. The reading is the highest since July of 2022 and represents return to expansion after sudden drop the previous month. The report shows that business optimism jumped to new 27-month high and that “...output charge inflation strengthened for the fifth successive month and to its highest level in a year. That said, a solid easing in the rate of increase in input costs should help prevent price pressures from becoming embedded.” Final services reading was unchanged at 52.9 while composite was revised higher to 53 from 52.8 as preliminary reported. The report shows easing of price pressures in the services sector, just what BoE wants to see, but services inflation still sits at an uncomfortably high level.

This week we will have employment data.

Important news for GBP:

Tuesday:​

• Payroll Change​
• Unemployment Rate​

AUD

Minimum wage was lifter by 3.75% after a 5.75% increase the previous year. Higher cost-of-living were cited as the main reason for wage increase. Higher wages generally lead to higher inflation and with inflation being sticky in Australia it leads to conclusion that RBA will stay on hold for a longer period of time.

Q1 GDP printed increase of 0.1% q/q vs 0.2% q/q as expected and in the previous quarter. On a yearly basis, growth has eased to 1.1% from 1.5% in Q4 of 2023. GDP per capita declined for the fourth straight quarter while terms of trade posted a second consecutive quarter of growth. Household consumption rose by 0.4% while government consumption rose by 1%. Net exports were negative and reduced growth as imports rose faster than exports. Investment declined by 0.9%.

Caixin manufacturing PMI in May rose to 51.7 from 51.4 in April. The report shows expansion of both supply and demand as new orders and new export orders continued to increase. Employment is still in contraction and price pressures remained low. Caixin services posted 54, up from 52.5 the previous month which helped push composite to 54.1. Trade data in May saw further widening of surplus to $82.62bn as exports surged 7.6% y/y beating expectations while imports rose by 1.8% y/y missing expectations.

This week we will have employment data from Australia and inflation data from China.

Important news for AUD:

Wednesday:​

• CPI (China)​

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

Q1 terms of trade came in at 5.1% q/q vs 3.1% q/q as expected, a big rebound after a drop of 7.8% in Q4 of 2023. This is a great sign for the economy when terms of trade improve due to export prices increasing and import prices decreasing. Unfortunately, this was not the case, as both export and import prices fell with latter falling at a stronger pace. Still, this will be a positive input for NZD. First June dairy auction showed prices increase by 1.7% making it the fifth consecutive auction of rising prices.

CAD

BoC has lowered the rate by 25bp and to 4.75% from 5%. The statement sees slower than expected growth and acknowledges falling inflation. Inflation is seen dropping to historical average giving board members more confidence that it is moving toward the 2% target. However, it still remains too high in some components, notably shelter. The economy is still operating in the excess supply. The statement concludes with “With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points. Recent data has increased our confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain. Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”

At the press conference Governor Macklem stated that if inflation continues to decline it will be “reasonable to expect” more rate cuts, but they remain data-dependent and continue with meeting-to-meeting approach. He added that core inflation will be the main focus of bank members in assessing where inflation is headed. Additionally, he mentioned that the way situation is currently unfolding it points to a soft landing adding that there is a room for economy to grow above potential.

Employment report for the month of May saw headline number at 26.7k vs 22.55k as expected. However, the unemployment rate ticked up to 6.2% while participation rate remained at 65.4%. Additionally, all of the jobs added were part-time (62.4k) as full-time jobs recorded a decline of 35.6k showing weakness in the labor market. Wages, on the other hand, continue to increase and rose by 5.1% y/y.

JPY

Q1 CAPEX data came in at 6.8% y/y vs 12.2% y/y as expected and down from 16.4% y/y in the Q4 of 2023. Companies posted a massive Q1 as their profits increased 15.1% y/y vs 8.3% y/y as was expected and up from 13% y/y in the previous quarter. Total cash earnings in April rose 2.1% y/y after March reading was revised up to 1% y/y. Real wages are still down 0.7% y/y as inflation is pressuring them down. Real wages have been negative for almost two years. Household spending in April rose 0.5% y/y for the first positive reading since February of 2023. BoJ is hoping that incoming higher wages will translate to higher spending and thus spur the economy.

Final manufacturing PMI for the month of May was revised down slightly to 50.4 but still in expansion territory, first in twelve months. The report shows increase in employment and cost pressures which can lead to more sustainable inflation pressures, just what BoJ wants to see. On the other hand, new orders and output were stable while both domestic and external demand remain subdued. Final services and composite readings were both revised up and are well into expansion showing 53.8 and 52.6 respectively.

This week we will have BoJ meeting. This meeting is considered to be a live one, meaning that we could see further steps taken toward normalization of monetary policy.

Important news for JPY:

Friday:​

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending May 31 came in at CHF461.9bn vs CHF461.2bn the previous week. Almost unchanged as SNB lets market dictate Swissy’s direction. May CPI data saw both headline and core number unchanged from previous month at 1.4% y/y and 1.2% y/y respectively.​

 

[katetrades]

Forex Major Currencies Outlook (June 17 – June 21)

BoE, RBA and SNB meetings followed by inflation data from the UK, preliminary PMI data from the Eurozone and the UK as well as consumption data from the US, the UK and China will highlight the week ahead of us.

USD

Headline CPI number in May came in at 3.3% y/y vs 3.4% y/y as expected and in April. Core number dropped to 3.4% y/y from 3.6% y/y making it the lowest core inflation reading since April of 2021. Monthly increases for both headline and core were 0.2% compared to 0.3% that was expected. Digging into details of the report we can see that shelter continued to increase by 0.4% m/m but it ticked down to 5.4% y/y from 5.5% y/y the previous month. Services less energy rose 0.2% m/m, the lowest increase in the last seven months, which put yearly reading at 5.3% y/y. Auto insurance, the biggest contributor to inflation this year rising over 20% YTD, saw decline m/m. Super Core, all items less food, shelter and energy, was unchanged m/m.

Fed has decided to leave the Fed Funds Rate unchanged at 5.25-5.50% range as was widely expected. The statement acknowledges that there has been a “modest further progress” to their 2% inflation target.

Summary of Economic Projections (SEP) showed GDP unchanged at 2.1% in 2024 and 2% in 2025 and 2026. Inflation has been revised higher and now it prints 2.6% in 2024 vs 2.4% as seen in March and 2.8% in 2025 vs 2.6% as seen in Match. Core PCE is seen at 2.8% in 2024 vs 2.6% in March and 2.3% in 2025 vs 2.2% in March. The unemployment rate is seen unchanged at 4% in 2024 and then raised to 4.2% in 2025 ,4.1% in 2026 and 4.2% in the long run. It is interesting that there were no changes to the 2024 unemployment rate as last NFP report showed it to already be at 4%. Federal funds rate is seen at 5.1% by the end of 2024, meaning only one cut vs three cuts as projected in March. Four officials project no cut, seven see one cut while remaining eight see two cuts. Rate is seen at 4.1% in 2025, up from 3.9% in March. Longer-term rate, neutral rate, has once again been raised and is now seen at 2.8% (it was 2.6% in March and 2.5% in December).

Chairman Powell started the press conference that inflation has eased substantially but it remains high. He emphasized during the press conference that Fed remain data-dependent. When asked about impact of high interest rates for longer on housing he stated that for housing it will be best that inflation comes down so they can cut rates and assist housing indicating that inflation remains priority.

The yield on a 10y Treasury started the week at 4.44%, rose to 4.47% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.90% and reached the high of 4.91%. Spread between 2y and 10y Treasuries started the week at -46bp then widened to -47bp as curve inverted further. The 2y10y is inverted for over twenty three months. FedWatchTool sees the probability of no change at July meeting at 90% while probability of a rate cut is around 10%. Probability of a September rate cut sits at around 69% while November is at around 80%.

This week we will have consumption data expected to show consumers bouncing back after weak April reading.

Important news for USD:

Tuesday:​

• Retail Sales​

EUR

ECB policymaker Villeroy stated that there is more room to cut rates and still remain in the restrictive territory. He emphasized importance of inflation data, especially services adding that the ECB remains more outlook driven. ECB Chief Economist Lane stated that they are not pre-committing to any path in regards to rates and added that rates are to stay sufficiently restrictive for as long as needed. Final German CPI was unchanged at 2.4% y/y while French was revised higher to 2.3% y/y.

This week we will have preliminary June PMI data expected to show continuation of economic recovery.

Important news for EUR:

Friday:​

• S&P Global Manufacturing PMI (Eurozone, Germany, France)​
• S&P Global Services PMI (Eurozone, Germany, France)​
• S&P Global Composite PMI (Eurozone, Germany, France)​

GBP

Payroll change in the month of May saw a loss of 3.1k jobs. The unemployment rate for the month of April ticked up to 4.4% with the employment change for the last 3 months showing a drop of 139k jobs. Average wages showed increase of 5.9% 3m/y while wages ex-bonus increased by 6% 3m/y. Both numbers were unchanged from March and are highly elevated causing concern for BoE regarding inflation pressures. The unemployment rate, highest since September of 2021, moving up from 3.8% at the start of the year and payroll numbers indicate loosening of the jobs market.

April GDP was flat. Services rose by 0.2% m/m, but industrial, manufacturing and construction output all declined. Q2 started on the weak note, but PMIs are pointing to pick up in the later months which should give us a positive GDP reading.

This week we will have inflation and preliminary June PMI data as well as BoE meeting. With inflation expected to continue declining markets are positioning for an August rate cut and next week’s meeting is seen as setting the stage for August.

Important news for GBP:

Wednesday​

• CPI​

Thursday:​

• BoE Interest Rate Decision​

Friday:​

• S&P Global Manufacturing PMI​
• S&P Global Services PMI​
• S&P Global Composite PMI​

AUD

May employment report showed a lot of positives. Firstly, the employment change came in at 39.7k vs 30k as expected. Secondly, the unemployment rate ticked down to 4% while participation rate ticked up to 66.8%. Thirdly, the structure of jobs showed all of the jobs (41.7k) were full-time while part-time employment showed a decline of 2k. Jobs market remains tight, full-time jobs are better paid and with inflation running high there will be no need for RBA to cut at their next week’s meeting.

China May CPI data saw it unchanged at 0.3% y/y but monthly reading declined by 0.1%. PPI came in at -1.4% y/y, improving from -2.5% y/y the previous month. Inflation data leaves room for more stimulus.

This week we will have RBA meeting as well as production and consumption data from China. With high inflation and strong labor market analysts are almost unanimous in expecting no change from the RBA.

Important news for AUD:

Monday:​

• Industrial Production (China)​
• Retail Sales (China)​

Tuesday:​

• RBA Interest Rate Decision​

NZD

Electronic card retail sales data for the month of May showed drops of 1.1% m/m and 1.6% y/y. Monthly data has been dropping since February while yearly data showed a small improvement as April reading saw a decline of 3.8% y/y. Electronic card retail sales account for around 70% of total retail sales.​

CAD

Building permits for the month of April, a very volatile data series, jumped 20.5% after falling 12.3% in March. BoC Governor Macklem stated that there is a limit to how far rates can diverge from the Fed rates but that they are not close to that limit.​

JPY

Final Q1 GDP reading saw economy contract by 0.5% q/q and 1.8% annualized. Private consumption declined by 0.7% while business investment fell by 0.4%. Net exports were a negative input to GDP as exports fell by more than imports (-5.1% and -3.3% respectively). Ultimately, government consumption grew by 0.2%. PPI for the month of May came in stronger than expected and higher than in April. If PPI prices translate into CPI it will cause more sustainable price pressures which is what BoJ is looking for.

BoJ left interest rate unchanged at 0% as was widely expected but decided not to reduce JGB purchases. Markets were looking for a reduction due to recent subtle communication from BoJ members but ultimately they decided with a 8-1 vote that it is appropriate to keep it at current levels. Governor Ueda stated at the press conference that reduction in bond purchases will start immediately after the July meeting adding that the size of the cut will be substantial. JPY has fallen after the statement was released, then regained some ground after Ueda’s comments.

CHF

SNB total sight deposits for the week ending June 7 came in at CHF459.8bn vs CHF461.9bn the previous week. Downward trend that started from mid-April continues but deposits are still within well-established range.

This week we will have SNB meeting. They are expected to leave rates unchanged.

Important news for CHF:

Tuesday:​

• SNB Interest Rate Decision​

 

[katetrades]

Forex Major Currencies Outlook (June 24 – June 28)

PCE and inflation from Canada will be the highlights of a week that represents end of Q2 followed by final Q1 GDP readings for the US and the UK.

USD

May retail sales report saw headline number rise by 0.1% m/m vs 0.3% m/m as expected with April reading being revised down. Control group came in at 0.4% m/m as expected but previous month’s reading was revised down. Sporting goods, clothing, motor vehicles and online have recorded biggest increases while gasoline stations showed the biggest decline followed by furniture and home furniture stores. Misses on the numbers plus negative revisions make this report on the weaker side and should contribute to the USD weakness.

The yield on a 10y Treasury started the week at 4.23%, rose to 4.29% and finished the week at around 4.26%. The yield on 2y Treasury started the week at 4.71% and reached the high of 4.76%. Spread between 2y and 10y Treasuries started the week at -49bp then tightened to -45bp as curve proceeded to steepen. The 2y10y is inverted for over twenty three months. FedWatchTool sees the probability of no change at July meeting at 90% while probability of a rate cut is around 10%. Probability of a September rate cut sits at around 66% while November is at around 79%.

This week we will get Fed’s preferred inflation report, PCE. Expectations are for it to come flat on the month and 0.1% m/m for core which will spur chances of a rate cut.

Important news for USD:

Friday:​

• PCE​

EUR

ECB Chief Economist Lane stated that bank should discern “noise” from “signal” in the incoming data and make decisions based on that as there are still questions regarding inflation momentum. He added that every meeting is a live one and that only big moves in EUR will have impact on monetary policy decisions. According to him, full effect of rates on inflation did not yet occur. Final CPI readings for the month of May confirmed numbers seen in the preliminary reading, namely 2.6% y/y for the headline and 2.9% y/y for the core.

Preliminary June PMI numbers missed expectations and flashed red across the board. Manufacturing printed 45.6 vs 47.3 in May as weakness was seen in both German and French readings. The output index has fallen to a six-month low with new orders and employment both declining. Services PMI came in at 52.6, down from 53.2 the previous month making it two consecutive months of declines. Services sector is stumbling but as stated in the report it is keeping the Eurozone afloat. Concerns about incoming French elections are weighing heavily on the economy as services continued to fall deeper into contraction. Composite PMI managed to stay in expansion with a 50.8 print, down from 52.2 in May. Overall, PMI numbers indicate a positive Q2 GDP reading, but raise concerns regarding performance in the third quarter.

GBP

May inflation report saw headline number fall to targeted 2% as expected from 2.3% y/y in April. Food, household goods and clothing prices are continuing to fall. Core CPI dropped to 3.5% y/y as expected from 3.9% y/y the previous month. Services inflation declined to 5.7% y/y from 5.9% y/y in April and it remains very elevated. It is 0.4% higher than BoE projected in their May Monetary Policy Report.

BoE has decided to leave the bank rate unchanged at 5.25% as was expected. The vote was 7-2 with Dhingra and Ramsden voting for a 25bp rate cut as was also expected. High services inflation is singled out as the issue and it was stated that members are uncertain that inflation will stay low before rates are cut. Monetary policy will need to remain restrictive in order to bring down inflation. Digging into the minutes there was a mention of high services inflation print not altering significantly disinflationary path indicating that the bank is laying ground for the cut, increasing chances of that cut coming in August.

Preliminary June PMI readings saw interesting print, manufacturing came in higher than services (51.4 vs 51.2). Manufacturing continued to improve and reached highest level since July of 2022 while services declined for the second month in a row and reached lowest point since December of 2023. Composite PMI declined to 51.7 from 53 in May. After a string of weak retail sales readings May report showed a rebound as both headline and ex autos,fuel beat expectations and rose 2.9% m/m. More impressive is that actual retail sales volumes rose across all of the main sectors.

AUD

RBA has left cash rate unchanged at 4.35% as widely expected. The statement states that inflation dropped significantly from the highs in 2022, but it remains elevated. The path to bring inflation to bank’s target is unlikely to be smooth. Inflation is coming down slowly than expected, bringing inflation down remains bank’s top priority. Economic outlook remains uncertain and there are also uncertainties regarding lags in the effect of monetary policy. Governor Bullock warned that a lot of things need to go their way to bring inflation back to range. She added that there was talk about hiking rates at the meeting but members ultimately decided to keep rate unchanged. Ultimately, she said that rate cuts were not discussed but that does not mean chances of rate hike were increasing. The statement and speech focus solely on inflation and bank cannot cut rates with these inflation numbers, meaning higher for longer is on.

May activity data from China was mixed. Industrial production plunged by more than expected (5.6% y/y vs 6% y/y as expected and down from 6.7% y/y in April) while retail sales rose by more than expected (3.7% y/y vs 3% y/y as expected and up from 2.3% y/y the previous month). The unemployment rate was unchanged at 5% y/y while Fixed Asset Investments dropped to 4% y/y from 4.2% y/y in April. Real estate investment fell -10.1% YTD vs -9.8% YTD the previous month as property sector is still in shambles. PBoC has left 1-year MLF rate at 2.5% as widely expected.

NZD

RBNZ Chief Economist Conway stated that inflation may prove more sticky in the short term but it could fall more quickly in the medium term. There are still challenges to bring inflation down to the target and restrictive policy is still needed. Ultimately, he expects headline inflation to drop to their target by the year end. Q1 GDP data showed growth after two consecutive quarters of negative growth and printed 0.2% q/q and 0.3% y/y after -0.1% q/q and -0.2% y/y in the previous quarter.

CAD

BoC minutes from the latest June meeting showed that members of the Governing Council debated whether to wait until July to make their move and start cutting rates. Members have agreed that inflation has slowed down enough for them to cut but were wary of inflation stalling. Members have also agreed that their moves will be taken meeting-by-meeting, meaning that every meeting is a live one and that dependence on data remains the main focus.

This week we will have inflation data. Core inflation is the main focus of BoC so this report will have big impact on their decision making process.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Nationwide headline inflation for the month of May came in at 2.8% y/y vs 2.9% y/y as expected and up from 2.5% y/y in April. Ex fresh food printed 2.5% y/y, up from 2.2% y/y the previous month while ex fresh food, energy (so-called core-core) came in at 2.1% y/y down from 2.4% y/y in April. The “core-core” is on decline since September of 2023 and although headline number is safely above the 2% target we could easily have it drop below 2% next month which is not something BoJ wants to see when discussing rate hikes.

Preliminary PMI data showed decline in economic activity in June. Manufacturing PMI came in at 50.1, down from 50.4 in May due to weaknesses in new orders. Services PMI, on the other hand, plunged into contraction with a 49.8 reading after printing 53.8 the previous month due to easing in new orders, new export orders, employment and backlog of orders. This combination dropped composite PMI to 50 from 52.6 in May.

CHF

SNB has cut key policy rate at their June meeting by 25 so the new rate is now at 1.25%. That is the second cut of the year as the rate was at 1.75% at the start of the year. SNB states that they will adjust monetary policy if necessary to control inflation. New inflation projections, however, are revised lower and see it at 1.3% for 2024, down from 1.4% previously, 1.1% for 2025, down from 1.2% previously and 1% for 2026, down from 1.1% previously.

Outgoing SNB Chairman Jordan stated that Swissy’s strength is due to geopolitical tensions and added that underlying inflation pressures have eased. Additionally, he reiterated that they are prepared to intervene in the markets if necessary and that intervention can be in both directions as he emphasized the importance of exchange rate and its influence on inflation. SNB total sight deposits for the week ending June 14 came in at CHF453.5bn vs CHF459.8bn the previous week.​

 

[katetrades]

Forex Major Currencies Outlook (July 1 – July 5)

Employment data from the US and Canada, inflation data from the Eurozone and Switzerland as well as ISM PMIs will highlight the week ahead of us. Thursday is Independence Day and US markets will be closed so liquidity will be thin.

USD

Final Q1 GDP reading was revised up to 1.4% annualized from 1.3% annualized in the second reading. Looking into the details contribution of personal consumption was down with increasing 1.5% vs 2% in the previous reading, but it was covered by investment and government spending. Net exports were a lower drag on the final reading than they were on the second reading.

Headline and core PCE numbers for the month of May came in at 2.6% y/y as expected and down from 2.7% y/y and 2.8% y/y respectively in April. Monthly increase of 0.1% was recorded on core while headline monthly figure was flat. Fed can be satisfied with the report and rate cut chances are increasing as USD is weakening. Personal income rose 0.5% m/m which could prove troublesome for inflation as people have more money to spend, but personal spending rose just 0.2% m/m.

The yield on a 10y Treasury started the week at 4.26%, rose to 4.40% and finished the week at around 4.39%. The yield on 2y Treasury started the week at 4.74% and reached the high of 4.77%. Spread between 2y and 10y Treasuries started the week at -48bp then tightened to -35bp as curve proceeded to steepen. The 2y10y is inverted for almost two years. FedWatchTool sees the probability of no change at July meeting at 90% while probability of a rate cut is around 10%. Probability of a September rate cut sits at around 68% while November is at around 79%.

This week we will have ISM PMI data, FOMC minutes and NFP. Headline number on Friday is expected to be around 180k with the unemployment rate staying at 4%.

Important news for USD:

Monday:​

• ISM Manufacturing PMI​

Wednesday:​

• ISM Services PMI​
• FOMC Minutes​

Friday:​

• NFP​
• Unemployment Rate​

EUR

ECB Chief Economist Lane stated that if data continues to confirm their base case scenario there will be more cuts. ECB policymaker Kazimir added that we can expect one more rate cut by the end of the year. He hinted that July will not bring rate cut so September seems to be the most likely time for the next rate cut. French inflation dropped to 2.1% y/y in June from 2.3% y/y in May. Spanish inflation ticked up to 3.4% y/y from 3.3% y/y the previous month. Italian inflation reading saw it unchanged at 0.8% y/y while expectations were for a 1% y/y reading.

This week we will have preliminary June inflation data.

Important news for EUR:

Tuesday:​

• CPI​

GBP

Final Q1 GDP reading saw revision up to 0.7% q/q and 0.3% y/y from 0.6% q/q and 0.2% y/y as preliminary reported. Household spending and net trade contributed positively to the reading while business investment was a drag on the reading. Services and production sectors increased in the first quarter while construction sector declined.

AUD

May monthly inflation data surprised to the upside printing 4% y/y vs 3.6% y/y in April, while an increase to 3.8% y/y was expected. Inflation is moving further away from the RBA’s target, third straight increase in monthly reading, and with them already discussing rate hikes at the last meeting chances of it are increasing. AUD has strengthened on the back of the data. Before the next RBA meeting (August 6) we will get June monthly inflation data and much more important Q2 inflation data on July 31. As a reminder, monthly inflation does not capture all of the items that go in the inflation basket, therefore much greater emphasis is put on quarterly reading. During the week, RBA deputy governor Hauser stated that it would be a mistake to set monetary policy on the basis of one number and thus dampened the AUD strength as he indicated that they will keep their options open at the August meeting.

NZD

May showed further widening of trade surplus to NZD204m from NZD3m in April with both exports and imports increasing. Treasury has warned that economic weakness is threatening their forecasts and that they are considering additional spending and revenues. Business confidence continued to decline as June reading printed 6.1 after 11.2 in May. This is the lowest reading since September of 2023 and it showed a big drop in residential construction and drops in export intentions and investment. On the positive side, inflation expectations eased further with pricing intentions softening.

CAD

BoC Governor Macklem delivered dovish leaning comments stating that the likelihood of reaching inflation target is increasing. He added that BoC members no longer see the need for higher unemployment rate in order to bring inflation to target and added that wage growth is moderating. April GDP printed 0.3% m/m as expected with May projection revised lower to 0.1% m/m from 0.3% m/m as previously seen.

Inflation surprised to the upside in May with headline number printing 2.9% y/y vs 2.6% y/y as expected and up from 2.7% y/y in April. Inflation increased 0.6% m/m. BoC stated that core inflation will be the main focus and we had trim and median measures of core inflation increase while common measure declined. Chances of a July rate cut have been pared down as markets do not feel that BoC will be comfortable with increases in inflation.

This week we will get employment data.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

BoJ Summary of Opinions from June meeting showed disagreement between members on the rate hike path as some want to see underlying inflation develop as projected before hiking while others think that the best path is to continue with monetary easing. Agreement was struck on the need for balance sheet normalization with reducing the BoJ influence in the bond market and trimming bond buying in predictable fashion.

Retail sales for the month of May showed growth of 1.7% m/m and 3% y/y vs 1.2% m/m and 2% y/y in April. Tokyo area inflation data showed headline number tick up to 2.3% y/y from 2.2% y/y in April with ex fresh food component increasing to 2.1% y/y from 1.9% y/y the previous month coming in stronger than 2% as expected. USDJPY has crossed the 160 level and is now trading at highest level since 1990. If consumption continues to increase following rising wages and inflation stays persistently above 2% talks about normalization of monetary policy will grow louder.

CHF

SNB total sight deposits for the week ending June 21 came in at CHF451.8bn vs CHF453.5bn the previous week. Deposits have been declining every week since the week ending April 19 and they are at the lowest levels for the year. Martin Schlegel will be the new SNB Chairman and will take over from Jordan on October 1.

This week we will have inflation data.​

Important news for CHF:

Thursday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (July 8 – July 12)

RBNZ meeting and inflation data from the US and China will highlight the week ahead of us that will also see Fed Chairman Powell testify on Tuesday.

USD

June ISM manufacturing PMI printed 48.5 vs 49.1 as expected and down from 48.7 in May. With the exception of March reading (50.3) manufacturing PMI has been in contraction every month since October of 2022. Production, new export orders and employment orders slipped back into contraction while new orders surged compared to May, but still in contraction. One positive is that prices paid component dropped to 52.1 from 57 the previous month indicating easing of inflationary pressures.

ISM services PMI plunged back into contraction in June with a 48.8 reading, down from 53.8 in May making it the lowest reading since May of 2020, the heart of pandemic. Business activity fell to 49.6 from 61.2 the previous month with new orders also dropping into contraction with a 47.3 print, down from 54.1 in May. Backlog of orders also plunged down into contraction while new export orders managed to barely stay in expansion, but still reported a huge drop compared to May reading. Employment continued to slip deeper into contraction. Prices paid declined as inflation pressures continue to subside.

Minutes from the June FOMC meeting showed that the economic forecast for the June meeting was similar to the projection at the previous meeting. “Participants noted that after a significant decline in inflation during the second half of 2023, the early part of this year had seen a lack of further progress toward the Committee's 2 percent objective.” Participants stated a few factors that will likely contribute to lower inflation ahead, such as. continued easing of demand–supply pressures in product and labour markets, lagged effects on wages and prices of past monetary policy tightening, lags in shelter prices to rental market developments and the prospect of additional supply-side improvements. Some participants highlighted reasons why inflation could remain above 2% for longer than expected, such as worsening geopolitical developments, heightened trade tensions, more persistent shelter price inflation, financial conditions that might be or could become insufficiently restrictive, or U.S. fiscal policy becoming more expansionary than expected. Most participants saw growth gradually slowing and concluded that policy stance is restrictive.

June employment report showed NFP increase by 206k vs 190k as expected but with a big revision to May reading (218k vs 272k as preliminary reported). The unemployment rate ticked higher to 4.1% as did the participation rate 62.6% from 62.5% the previous month. Wages came in line with expectations 0.3% m/m and 3.9% y/y, down from 0.4% m/m and 4.1% y/y in May. Government added 70k jobs while health care added 49k jobs.

The yield on a 10y Treasury started the week at 4.40%, rose to 4.49% and finished the week at around 4.28%. The yield on 2y Treasury started the week at 4.77% and reached the high of 4.8%. Spread between 2y and 10y Treasuries started the week at -36bp then tightened to -32bp as curve proceeded to steepen. The 2y10y is inverted for two years. FedWatchTool sees the probability of no change at July meeting at around 95% while probability of a rate cut is around 5%. Probability of a September rate cut sits at around 75% while November is at around 86%.

This week we will get June inflation data. Headline number is expected to decline further while core is seen remaining unchanged.

Important news for USD:

Thursday:​

• CPI​

EUR

Final manufacturing PMI for the month of June was revised slightly up to 45.8 from 45.6 as preliminary reported on the back of improvements in German, French and Italian readings. Once concern is that new orders continue to decline. Final services PMI were was revised up to 52.8 from 52.6 on the back of positive revision to French reading (49.6 vs 48.8) and another strong reading from Spain. The report shows that services recovery is broad-based among four major economies (Germany, France, Italy and Spain). Employment was higher in all four major economies while input prices and prices charged to consumers increased at slowest pace in three years. Tourism is seen as the biggest driver of services sector. Composite was revised slightly higher to 50.9 from 50.8 as preliminary reported.

Preliminary June inflation data showed headline number tick down to 2.5% y/y as expected from 2.6% y/y in May, but core reading remained unchanged at 2.9% y/y while a slide down to 2.8% y/y was expected. German reading saw inflation coming to 2.2% y/y from 2.4% y/y in May.

ECB Chief Economist Lane stated that June inflation data is along the lines of their projections and that services inflation remains essential. Later on he added that firms are reporting wage pressures coming down which should in turn help with disinflationary process. Minutes from the June meeting showed that some members were not for a rate cut. Additionally, they show that June cut was not a start of a rate cutting cycle. The cut seems to be made because ECB’s pre-commitment to it in previous months.

GBP

Final June manufacturing PMI was revised down to 50.9 from 51.4 as preliminary reported and it is now down from 51.2 in May. New orders and output continue to increase and are in expansion while new export orders declined further indicating weak foreign demand for UK manufacturing products. Input prices have jumped and are rising at the quickest pace since 2023 which is a cause for great concern regarding persistent underlying inflation pressures. Final services were revised up to 52.1 from 51.2 and now represent smaller decline from 52.9 in May. Similar picture is seen with composite as it was revised up to 52.3 from 51.7 and down from 53 the previous month. The report shows easing of input costs which in turn should bring services inflation down and BoE is looking for that in order to deliver its first rate cut. The Labour party has won majority, north of 400 seats in the Parliament, as expected and Keir Stammer will be the new Prime Minister.

AUD

Minutes from RBA June meeting showed that there was a stronger case for holding rates than for raising them but there is a need to be vigilant about upside risks to inflation as was suggested by the latest incoming data. They clarified that recent incoming data is not changing their projection for inflation coming back down to target by 2026. Material rise in inflation could require significantly higher rates. All in all, July 31 is the most important data as we will get Q2 CPI data then which will dictate RBA’s decision at the August meeting.

Official June PMI data from China showed manufacturing at 49.5, same as in May, for the second consecutive month of contraction. Services PMI declined to 50.5 from 51.1 the previous month and dragged with it composite to 50.5 from 51 in May. Caixin Manufacturing fared much better than official number as it printed 51.8, tick up from 51.7 the previous month. The reading is highest in three years, it has been increasing every month since the start of the year and it is indicating that SMEs are doing much better than large state-owned companies. Caixin services PMI dropped to 51.2 from 54 as new orders and new export orders slow down, but the latter faring much better. This drop in services led to a drop in composite to 52.8 from 54 in May.

This week we will have inflation and trade data from China.

Important news for AUD:

Wednesday:​

• CPI (China)​

Friday:​

• Trade Balance (China)​

NZD

Business confidence has plunged in Q2 to -44%, down from -25% in the previous quarter. The survey shows increasing pessimism among companies as high interest rates continue to push demand down. First dairy auction of July saw prices plummet by 6.9%. Anhydrous Milk Fat and Butter saw double digit price declines.

This week we will have RBNZ meeting. With inflation running high there will be no changes in rate or monetary policy. Recent data is not allowing RBNZ to take more dovish stance.​

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

Employment report for the month of June heavily missed expectations by showing a loss of 1.4k jobs vs 22.5 added jobs expected. The unemployment rate jumped to 6.4% from 6.2% in May while increase to 6.3% was expected. In additional to that, the participation rate ticked down to 65.3% from 65.4% the previous month. Wages have gone up to 5.6% y/y from 5.2% y/y in May.

JPY

Due to revision to construction data Q1 GDP has been revised down to -2.9% from -1.8% as previously reported. This is an awful GDP reading and it will be a big blow to rate hike chances. Final June manufacturing PMI was revised down to 50 with report showing increases in output and business confidence but higher cost pressures due to weak JPY which led manufacturers to increase their prices and thus contribute to inflation pressures amidst weaker demand for manufacturing products. Final services have been revised down to 49.4 making it first month in contraction since August of 2022. This has pushed composite into contraction at 49.7. Household spending in May provided us with another weak data print as it showed a decline of 1.8% y/y vs increase of 0.1% y/y as expected and down from 0.5% y/y in April.

CHF

SNB total sight deposits for the week ending June 28 came in at CHF452bn vs CHF451.8bn the previous week. It is a negligible move higher from the lows of a well-established channel. June inflation saw a headline print of 1.3% y/y vs 1.4% y/y as expected and in May. Core CPI printed 1.1% y/y, down from 1.2% y/y the previous month. SNB published projections at their June meeting showing they are expecting lower inflation in 2024.​

 

[katetrades]

Forex Major Currencies Outlook (July 15 – July 19)

ECB meeting will be the highlight of the week followed by inflation data from the UK, New Zealand and Canada, employment data from the UK and Australia as well as Q2 GDP from China.

USD

Fed Chairman Powell testified in front of the Senate and in the prepared statement said that inflation data was not encouraging in the Q1 but since then "The most recent inflation readings, however, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2 percent."He added that “...elevated inflation is not the only risk we face." Powell reiterated that more good data is needed to strengthen confidence in inflation coming down and that Fed remains data-dependent making decisions meeting-by-meeting. The likely direction is to loosen monetary policy and he did not want to give any information on the timing.

CPI report for the month of June showed headline number drop to 3% y/y from 3.3% y/y in May while expectations were for a 3.1% y/y print. This is the lowest print since April of 2021. Monthly figure showed deflation as it printed -0.1%. Core inflation ticked down to 3.3% y/y from 3.4% y/y the previous month. “Super core”, services ex shelter, print also declined as it printed 4.65% vs 4.8% in May. Shelter came in at 0.2% m/m and 5.2% y/y, down from 5.4% y/y the previous month. This report will strengthen Fed’s confidence that inflation is sustainably on the way to their 2% target and markets are pricing in two rate cuts for 2024. Gold has risen over $2400 and stayed above it as the week ended.

The yield on a 10y Treasury started the week at 4.29%, rose to 4.32% and finished the week at around 4.18%. The yield on 2y Treasury started the week at 4.61% and reached the high of 4.64%. Spread between 2y and 10y Treasuries started the week at -33bp then tightened to -27bp as curve proceeded to steepen after CPI report. The 2y10y is inverted for two years. FedWatchTool sees the probability of no change at July meeting at around 93% while probability of a rate cut is around 7%. Probability of a September rate cut jumped to almost 93% after CPI report.

This week we will have consumption data.

Important news for USD:

Tuesday:​

• Retail Sales​

EUR

Member of the ECB executive board Fabio Panetta stated that if disinflationary process continues they are prepared to gradually reduce interest rates. Wage growth is expected to ease in time and he added that ECB is prepared to quickly act in both directions if situation demands it. Final German and Spanish June CPI were unchanged at 2.2% y/y and 3.4% y/y respectively while French reading was revised up to 2.2% y/y from 2.1% y/y as preliminary reported.

This week we will have ECB meeting. No change to the rate is expected as ECB will likely emphasize their data-dependent and meeting-by-meeting approach.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

BoE Chief Economist Huw Pill stated that incoming data regarding services inflation and wage growth point to an uncomfortable strength in inflation. He added that it is hard to argue against inflation proving to be persistent in the UK and added that it is more appropriate to speak of “when” rather than “if” in regards to rate cuts. He added that uncertainty around wages is likely to stay. Markets, rightfully, took these comments as hawkish and propelled GBP higher.

May GDP rose by 0.4% m/m vs 0.2% m/m as expected and up from being flat in April. Services rose 0.3% m/m and were the biggest contributor to the reading. Production and construction also expanded printing 0.2% m/m and 1.9% m/m respectively. This reading will push rate cuts further into the future.

This week we will have inflation and employment data.

Important news for GBP:

Wednesday:​

• CPI​

Thursday:​

• Payrolls Change​
• Unemployment Rate​

AUD

Chinese CPI data for the month of June showed headline number come in at 0.2% y/y vs 0.4% y/y as expected and tick down from 0.3% y/y in May. Food prices, particularly non-pork food prices were the main reason for weak inflation print. Core CPI was unchanged with 0.6% y/y. PPI has continued to climb with -0.8% y/y vs -1.4% y/y the previous month, but it is still in deflation. Trade balance data for the month of June saw widening of surplus to $99.05bn as exports rose 8.6% y/y while imports declined 2.3% y/y causing concerns about weak domestic demand.

This week we will have employment data from Australia as well as Q2 GDP and economic activity data from China.

Important news for AUD:

Monday:​

• GDP (China)​
• Industrial Production (China)​
• Retail Sales (China)​

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

RBNZ has left the cash rate unchanged at 5.5% as was widely expected but the tone of the statement was less hawkish/more dovish than expected. The statement showed that high interest rates managed to significantly reduce consumer price inflation and that “Committee [is] expecting headline inflation to return to within the 1 to 3 percent target range in the second half of this year.” Additionally, the “The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.” Markets saw RBNZ moving rate cuts closer, two cuts are getting priced in by the end of the year, so they reacted to it by selling NZD.

This week we will have inflation data.

Important news for NZD:

Friday:​

• CPI​

CAD

May building permits plunged 12.2% after being up 23.4% in April. In addition Canadian home sales dropped 9.4% y/y in June. CAD had a rough week. It managed only to hold its own against the USD while it made new yearly lows against GBP.​

This week we will have inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Nominal wages in May rose 1.9% y/y after 1.6% y/y increase in April making it the highest reading since June of 2023. Real wages, adjusted for inflation, came in negative at -1.4% y/y. This is the 26 consecutive month of declining real wages. Without increases in real wages there cannot be sustainable inflation according to BoJ, as falling wages have negative impact on consumption, therefore they will have a hard time normalizing monetary policy further.

BoJ has introduced new tactic when it comes to intervention. They have used a weak US CPI print as a moment to buy JPY and push USDJPY pair down around 400 pips. The fundamental picture is still not good for JPY so we can expect any dips to be bought but staying or going long USDJPY during US news event seems to be very dangerous.

CHF

SNB total sight deposits for the week ending July 5 came in at CHF453.4bn vs CHF452bn the previous week. Sight deposits have bounced back from lows and posted a second consecutive week of increases.​

 

[katetrades]

Forex Major Currencies Outlook (July 22 – July 26)

BoC meeting, Q2 GDP from the US and PCE coupled with preliminary July PMI data from Eurozone and the UK will highlight the week ahead of us.

USD

Retail sales for the month of June came in flat vs -0.3% m/m as expected. Consumption declined compared to 0.3% m/m reading posted last month but at a smaller pace than expected. Control group, it excludes volatile components and is used for GDP calculation, rose by 0.9% m/m vs 0.4% m/m increase in May. This was the largest increase in over a year. Gasoline stations sales recorded the biggest drop followed by motor vehicles and parts while nonstore retailers, online, saw biggest increase in sales. Ex autos rose 0.4% m/m vs flat as expected and ex autos and gas rose by 0.8% m/m vs 0.3% m/m as expected. The report showed consumers going strong as all readings beat expectations on top of positive revisions to previous month’s numbers.

After assassination attempt on former President and current presidential candidate Donald Trump the so-called “Trump trade” could be observe in the previous week. It showed possibility of how markets would react if Trump becomes the new president. We could see a huge jump in Rusell 2000 index as funds have gone out of technology sector and rotated into the smaller companies comprising Rusell 2000 index as Trump presidency is seen to deliver lower rates and tax cuts which would in turn prop up domestic companies. Lower rates would be negative for USD and we saw it weakening with safe havens gaining (JPY, CHF and Gold). Additionally, AUD and NZD had a bad week as their proximity to China is seen as detriment to them as Trump would be very hawkish on China, increasing tariffs. Trump also seems to be pro crypto which will help BTC price and he is also against CBDC The biggest IT outage occurred on Friday when issue with Microsoft systems occurred. They stated that the issue was caused by a recent CrowdStrike update. Media outlets, bank applications, airports, trading desks all had disruptions in their business with some US states reporting that even 911 service was down. Gold has reached new all time high during the week only to give it all back and finish the week lower from where it started.

The yield on a 10y Treasury started the week at 4.19%, rose to 4.24% and finished the week at around 4.25%. The yield on 2y Treasury started the week at 4.46% and reached the high of 4.48%. Spread between 2y and 10y Treasuries started the week at -27bp then tightened to -24bp as curve proceeded to steepen. The 2y10y is inverted for over two years. FedWatchTool sees the probability of no change at July meeting at around 95% while probability of a rate cut is around 5%. Probability of a September rate cut is seen at around 98%.

This week we will get preliminary Q2 GDP reading as well as Fed’s preferred inflation measure PCE.

Important news for USD:

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

ECB has left key rates unchanged as was widely expected. The statement shows determination to bring inflation down to the 2% target and to keep policy restrictive for as long as necessary to reach its goal. Members accessed that monetary policy is keeping financial conditions restrictive and have acknowledged that “domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year.” They refused to pre-commit to a rate cut path and will stay data-dependent making their decisions meeting-by-meeting.

At the press conference ECB President Lagarde stated that growth in the second quarter will likely be lower than the one in the first quarter as risks to growth are tilted to the downside. She reiterated that they are not pre-commited to rate cuts and that they are data-dependent. Additionally, she confirmed that today’s decision on rates was unanimous adding that wages are still rising but wage growth is expected to decline next year. Inflation is seen fluctuating around current levels and is expected to go down to target in H2 of 2025.

This week we will get preliminary July PMI data.

Important news for EUR:

Wednesday:​

• S&P Global Manufacturing PMI (Eurozone, Germany, France)​
• S&P Global Services PMI (Eurozone, Germany, France)​
• S&P Global Composite PMI (Eurozone, Germany, France)​

GBP

June inflation numbers saw both headline and core CPI remain unchanged at 2% y/y and 3.5% y/y respectively. Additionally, services inflation stayed unchanged at a very high level of 5.7% y/y. August is still seen as the time for a rate cut, but this report will not raise chances of it happening. The jobs report showed June payrolls change increase by 16k. May ILO unemployment rate remained at 4.4% while wages declined with both bonus and ex bonus categories printing 5.7% 3m/y.

This week we will get preliminary July PMI data.

Important news for GBP:

Wednesday:​

• S&P Global Manufacturing PMI​
• S&P Global Services PMI​
• S&P Global Composite PMI​

AUD

June employment report showed a very strong labour market as economy added 50.2k jobs vs 20k as expected. The unemployment rate ticked to 4.1% but it was done on the back of improvement in the participation rate which ticked up to 66.9%. A great majority of jobs added were full-time (43.3k) which is a great sign for the economy as those are better paid jobs. Part-time jobs rose by 6.9k.

Q2 GDP missed expectations as it came in at 0.7% q/q and 4.7% y/y vs 1.1% q/q and 5.1% y/y and down from 1.5% q/q and 5.3% y/y in the Q1. Weak consumption and property sector were great drags and if China plans to reach its growth target of 5% they will need to step up with stimulus. Industrial production for the month of June came in at 5.3% y/y, down from 5.6% y/y in May, but higher than 5% y/y expected. On the other hand, retail sales rose 2% y/y, a huge drop from 3.7% y/y the previous month and a big miss from 3.3% y/y expected. PBoC has left 1-year MLF rate unchanged at 2.5% as was expected.

NZD

CPI data for the Q2 saw inflation at 0.4% q/q and 3.3% y/y, lower than 0.5% q/q and 3.4% y/y as expected and down from 0.6% q/q and 4% y/y in the Q1. Additionally, RBNZ’s sectoral model, their preferred inflation measure, showed a decline to 3.6% y/y from 4.2% y/y in the previous quarter. RBNZ has stated at their last meeting that inflation will fall within their 1-3% range in the second part of the year and this report vindicates them. One concern is that non-tradable inflation, a good measure of domestic demand, is still high at 0.9% q/q and 5.4% y/y, although down from 5.8% y/y in the previous quarter. Analysts are moving rate cuts back into 2024 after the report. Second auction in July saw dairy prices increase by 0.4% after falling for previous two.

CAD

June inflation report saw another decline for headline CPI as it printed 2.7% y/y from 2.9% y/y in May while a print of 2.8% y/y was expected. Monthly figure printed deflationary -0.1%. Core measures saw trim unchanged at 2.9% y/y while common and trim measures declined to 2.6% y/y and 2.3% y/y from 2.7% y/y and 2.4% y/y respectively. BoC has stated that core inflation is most watched metric and with it coming down it cements the case for a rate cut next week.

This week we will have BoC meeting. After a further drop in core inflation we see BoC continuing with rate cuts and delivering another 25bp rate cut at next week’s meeting.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

JPY

National inflation data for the month of June showed headline CPI come in unchanged at 2.8% y/y vs 2.9% y/y as expected, but increases were seen in core components with ex fresh food printing 2.6% y/y vs 2.5% y/y in May and ex fresh food, energy printing 2.2% y/y vs 2.1% y/y the previous month. BoJ data hinted that they have intervened on Friday July 12 with JPY2.14tn. This was a much less efficient intervention than one done after the US CPI report on Thursday.

CHF

SNB total sight deposits for the week ending July 12 came in at CHF458.9bn vs CHF453.4bn the previous week. This is the third consecutive week of increases in deposits as they are moving up from the bottom of the range.​

 

[katetrades]

Forex Major Currencies Outlook (July 29 – Aug 2)

Summer is in full swing but this week is not a time to rest as we will get Fed, BoE and BoJ meetings, Treasury Quarterly Refunding Announcement, employment data from the US, GDP data from the Eurozone, inflation data from the Eurozone, Australia and Switzerland and a slew of earnings data.

USD

Advanced reading showed Q2 GDP increase by 2.8% vs 2% as expected and double the 1.4% seen in the first quarter. Personal consumption rose 2.3% and contributed with 1.57pp to the final reading while it did only 0.98pp in the previous quarter. There was a big jump in gross private domestic investment which printed 8.4% vs 4.4% in Q1. Mainly it was through investment in equipment. Net trade was a bigger drag on the reading than in Q1 while government spending contributed with 0.53pp vs 0.31pp in the first quarter. GDP deflator fell to 2.3% from 3.1% in Q1, it fell more than 2.6% as expected.

Headline PCE number ticked down to 2.5% y/y in June from 2.6% y/y in May and 0.1% m/m as expected (0.0788% m/m). Core PCE remained unchanged at 2.6% y/y with a monthly reading of 0.2% m/m (0.188% m/m). Personal income came in at 0.2% m/m vs 0.4% m/m as expected and lower from 0.4% m/m in May. Personal spending also came in at 0.2% m/m, lower than 0.4% m/m the previous month.

The yield on a 10y Treasury started the week at 4.24%, rose to 4.29% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.52% and reached the high of 4.53%. Spread between 2y and 10y Treasuries started the week at -27bp then tightened to -16bp as curve proceeded to steepen. The 2y10y is inverted for over two years. FedWatchTool sees the probability of no change at July meeting at around 95% while probability of a rate cut is around 5%. Probability of a September rate cut is fully priced in while there is almost 12% change for a 50bp cut.

This week we will have Treasury Quarterly Refunding Announcement on Monday and Wednesday, ISM manufacturing PMI, FOMC meeting and NFP data. Fed is expected to keep funds rate unchanged while laying ground for the September cut. Headline NFP is expected to be around 190k with the unemployment rate staying at 4.1%,

Important news for USD:

Wednesday:​

• Fed interest Rate Decision​

Thursday:​

• ISM Manufacturing PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

Preliminary July PMI data from the Eurozone showed misses across the board. Manufacturing slid to 45.6 from 45.8 in June while 46.1 was expected. Services dropped to 51.9 from 52.8 the previous month while a 53 reading was expected. Composite barely managed to hang on in expansion with a 50.1 reading, down from 50.9 in June while improvement to 51.1 was expected. The divide between two sectors increases further as manufacturing plunges deeper into contraction while services continue to increase although at a slower pace. Input prices increased in both sectors while output prices showed only a small decline indicating that price pressures are still a cause of concern. German readings saw declines across the board with overall activity, measured as composite PMI, fell into contraction with a 48.7 print. On the other hand, French services returned into expansion with a 50.7 print and composite got closer to the 50 level with a 49.5 print. French recovery is boosted by the incoming Olympic Games. Although data is not encouraging and points to a weak start to second part of the year there are signs that Q3 growth should be positive. ECB vice president De Guindos stated that September is more convenient month for taking decisions alluding to the fact that new projections are published that month. He emphasized the importance of wage growth.

This week we will get first Q2 GDP and preliminary July inflation readings.

Important news for EUR:

Tuesday:​

• GDP​

Wednesday:​

• CPI​

GBP

Preliminary PMI for the month of July showed improvements across the board. Manufacturing rose to 51.8 from 50.9 in June (51.1 was expected). Services printed 52.5, up from 52.1 the previous month which pushed composite to 52.7 from 52.3 in June. The data show much more encouraging start of H2 “… with output, order books and employment all growing at faster rates amid rebounding business confidence, while price pressures moderated."

This week we will have BoE meeting. Markets are split on their decision for cut or pause while we are leaning more towards a cut.

Important news for GBP:

Thursday:​

• BoE Interest Rate Decision​

AUD

PBoC has started cutting rates. First they reduced 7-day repo rate by 10bp to 1.70%. This bank seems to want for this rate to be the main rate. Next, there was a decision to lower collateral on MLF loans. Ultimately, 1-year and 5-year LPR rates were also cut by 10bp, they are now at 3.35% and 3.85% respectively. Later in the week PBoC continued with easing measures and cut 1-year MLF rate by 20bp to 2.3%. This has caught market by surprise because PBoC left 1-year MLF unchanged at the start of the month. Additionally, the cut was 20bp, while cuts to other rates were 10bp and collateral needed for these loans will be reduced. These moves will bring more liquidity into the market, reduce the funding costs and are intended to give push to growth.

This week we will get all important Q2 inflation reading from Australia as well as official PMI data from China.

Important news for AUD:

Wednesday:​

• CPI​
• Manufacturing PMI (China)​
• Services PMI (China)​
• Composite PMI (China)​

NZD

Consumer confidence for the month of July has improved to 87.9 from 83.2 in June. The reading above 100 indicates optimism among consumers while reading below indicates pessimism so consumer is getting less pessimistic. NZD has had a terrible week, due to rotation out of high yielding currencies, as it lost ground against all of the majors with biggest losses seen in the NZDJPY.

CAD

BoC proceeded with its rate cutting cycle and gave us second 25bp rate cut in a row. The rate is now at 4.5%. The accompanying statement acknowledges weakness in household spending and slack in the labour market. GDP is seen increasing in H2 of 2024 through 2025 with new projections showing 2024 GDP at 1.2%, 2025 at 2.1% and 2026 at 2.4%. Broad inflation pressures are easing and “The Bank’s preferred measures of core inflation are expected to slow to about 2½% in the second half of 2024 and ease gradually through 2025. The Bank expects CPI inflation to come down below core inflation in the second half of this year, largely because of base year effects on gasoline prices. As those effects wear off, CPI inflation may edge up again before settling around the 2% target next year“. Shelter and “some other services” are holding inflation up and “Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook“.

Governor Macklem stated in an opening statement that decision was influenced by three main considerations. “First, monetary policy is working to ease broad price pressures. Second, with the economy in excess supply and slack in the labour market, the economy has more room to grow without creating inflationary pressures. Third, as inflation gets closer to the 2% target, the risk that inflation comes in higher than expected has to be increasingly balanced against the risk that the economy and inflation could be weaker than expected”. He emphasized that focus should be turned towards growth and downplayed concerns regarding widening of rates compared to the USA. He added that if inflation continues to ease as expected further rate cuts could be expected but policy remains data dependent and decisions will be made meeting-by-meeting.

JPY

Preliminary PMI data for the month of July saw manufacturing slide into contraction with a 49.2 print vs 50 in June. Expectations were for it to move further up in expansion with a 50.5 print but drops in output and new orders pushed the reading into contraction. Additionally, there was an increase in input costs indicating further inflation pressures. Services rebounded back into expansion with a 53.9 print after surprising drop below 50 in June (49.4). Services output and new orders showed growth and unlike manufacturing input prices declined but output prices increased indicating stronger inflation pressures. July inflation for the Tokyo area saw headline number at 2.1% y/y vs 2.2% y/y in June. Ex fresh food, energy component also declined as it printed 1.5% y/y vs 1.6% y/y as expected and down from 1.8% y/y the previous month. Ex fresh food component ticked up to 2.2% y/y from 2.1% y/y in June. JPY had a monster week as unwinding of a carry trade helped it gain massive strength.

This week we will have BoJ meeting. Markets are pricing in around 65% chance of a 15bp rate hike and BoJ is seen embarking on QT by lowering JGB purchases.

Important news for JPY:

Wednesday:​

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending July 19 came in at CHF461.3bn vs CHF458.9bn the previous week. Sight deposits continue to increase, rising for four consecutive weeks, indicating that 450bn is the bottom of the range.

This week we will get inflation data.

Important news for CHF:

Friday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Aug 5 – Aug 9)

After a very eventful week this week will be more calm but will still have RBA meeting, employment data from New Zealand and Canada as well as ISM services PMI and trade balance and inflation data from China.

USD

US Treasury plans to issue $740bn bonds in the Q3 provided that TGA has a quarter end balance of $850bn. It was estimated that they will borrow $856bn. Q2 Employment Cost Index saw increase of 0.9% vs 1% as expected. Lower wages and overall employment costs will help ease Fed’s worries about wage-price induced inflation spiralling out of control.

Fed has left interest rates unchanged in a 5.25 – 5.50% range as was widely expected. The statement showed that economic activity continues to expand at a solid pace, job are moderating and the unemployment rate has moved up but it remains low. Inflation has eased over the past year but remains somewhat elevated. The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance. They have added that they are attentive to their employment goals. They repeated that they do not expect to cut until they have gained greater confidence that inflation is moving closer to 2%. The Committee is prepared to adjust monetary policy so it is in line with its goals and the statement concludes with "The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

Powell clarified during the press conference that there was no decision made on September meeting and emphasized that Fed is data-dependent and not data point-dependent, meaning that they are looking at a broader picture. He hinted that if economy moves in line with their projections September will see a rate cut. Powell clarified that they are seeing declines in broader inflation, not just in goods but in both housing and non-housing services which is a very encouraging sign. He emphasized several times that they want to sere more confirmation in data before cutting rates. Additionally, he stated that there are plausible scenarios ranging from “zero to several cuts this year”.

ISM Manufacturing PMI for July 46.8, down from 48.5 in June while markets expected an increase to 48.8. This makes it 20 out of last 21 reports in contraction. Details of the report are ugly. Production, new orders and employment all fell further deeper into contraction. Prices paid index increased and moved further into expansion indicating that inflation pressures are not slowing down yet. Weak domestic demand and uncertainty regarding outlook of the economy are main concerns manufacturers state in report.

July NFP report was weak. Headline number printed 114k vs 175k as expected with a 27k negative revision to June reading. The unemployment rate jumped to 4.3% from 4.1% the previous month but when it is not rounded it printed 4.252%. The increase in the unemployment rate has triggered Sahm rule, which states that recession occurs when three-month moving average of the national unemployment rate rises by 0.50% or more relative to its low during the previous 12 months. Participation rate managed to tick up to 62.7% and thus to give some comfort regarding the increase in the unemployment rate. U6 unemployment rate jumped to 7.8% from 7.4% in June. Weakness was seen in wages that rose 0.2% m/m and 3.6% y/y vs 0.3% m/m and 3.7% y/y as expected and down from 0.3% m/m and 3.9% y/y the previous month. Additionally, hours worked ticked down to 34.2 hours. Healthcare continued to add the biggest number of jobs while government added 17k jobs. This reading gives boost to the chances of a September rate cut.

The yield on a 10y Treasury started the week at 4.20%, rose to 4.20%, then dropped below 4% after the FOMC meeting and finished the week at around 3.80%. The yield on 2y Treasury started the week at 4.39% and reached the high of 4.42% only to decline post FOMC meeting and drop below 4% after the NFP. Spread between 2y and 10y Treasuries started the week at -19bp then tightened to -9bp as curve proceeded to steepen. The 2y10y is inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 41% while probability of a 50bp rate cut is around 59%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will have ISM Services PMI.

Important news for USD:

Monday:​

• ISM Services PMI​

EUR

Preliminary Q2 GDP printed 0.3% q/q unchanged from the first quarter while a 0.2% q/q reading was expected. French Q2 GDP printed 0.3% q/q vs 0.2% q/q as expected while Q1 GDP was revised up to show a growth of 0.3% q/q. Household consumption was flat while government consumption rose by 0.3%. Fixed investment also rose by 0.1% and net trade also positively contributed to the reading. Spain Q2 GDP printed 0.8% q/q vs 0.5% q/q as expected, Italian Q2 GDP came in at 0.2% q/q as expected while Germany disappointed with a contraction of -0.1% q/q vs 0.1% q/q as expected and down from 0.2% q/q in the first quarter.

Preliminary July CPI came in at 2.6% y/y vs 2.5% y/y as expected and in June while core CPI stayed unchanged for the third straight month at 2.9% y/y. Expectations were for it to slip to 2.8% y/y. Both German and French July CPI readings ticked up to 2.3% y/y from 2.2% y/y in June.​

GBP

BoE has cut interest rate by 25bp to 5%. It was a very close call with a 5-4 vote (Pill, Mann, Haskel and Greene dissented) and the decision has been described as “finely balanced”. The statement contains hawkish tones as “It is now appropriate to reduce slightly the degree of policy restrictiveness”. Inflation is expected to increase towards 2.75% in the H2 of 2024 due to base effects connected with energy prices. Inflation and inflation expectations are expected to continue decline caused by lower wage pressures but they warn that “inflationary persistence has not yet conclusively dissipated, and there remained some upside risks to the outlook”. The statement shows that bank continues to monitor the risks of inflationary persistence and remains in meeting-by-meeting stance. GDP for 2024 was revised up to 1.25% from 0.5% previously.

BoE Governor Bailey reiterated as the press conference that this was a “finely balanced” decision adding that there may be one step up in services inflation in August but after that it will come down during the remainder of the year. Services inflation remains closely watched data point. He also reiterated that decisions regarding monetary policy will be made meeting-by-meeting and he would not give any comments regrading the future path of rates. He cautioned everyone against a view of successive rate cuts at next meetings which was echoed by the Chief Economist Huw Pill.

AUD

Q2 inflation data showed headline number unchanged at 1% q/q with 3.8% y/y vs 3.6% y/y in Q1. Core number showed some easing of inflation as it printed 0.8% q/q vs 1% q/q as expected and in previous quarter as well as 3.9% y/y vs 4% y/y as expected and in Q1. Headline moving in the wrong direction while core slipping towards the target will create uncertainty regarding next week’s RBA meeting.

Official PMI data from China for the month of July saw manufacturing tick down to 49.4 from 49.5 in June as production, new orders and new export orders indexes continued to decline. Services barely managed to stay in expansion with a 50.2 print, down from 50.5 the previous month with new orders and new export orders still in contraction for fifteen and seven months respectively. Composite also printed 50.2, down from 50.5 in June. Official PMI data have been declining for the fourth consecutive month. Caixin manufacturing PMI surprised to the downside and slipped into contraction for the first time in nine months with a 49.8 reading. Expectations were for a 51.5 reading and June figure was 51.8. The report showed a marginal increase in output followed by decline in new orders while input costs increased but export prices decreased.

This week we will have RBA meeting as well as trade balance and inflation data from China. After Q2 inflation slipped down no change to rate is expected.

Important news for AUD:

Tuesday:​

• RBA Interest Rate Decision​

Wednesday:​

• Trade Balance (China)​

Friday:​

• CPI (China)​

NZD

Business confidence made a big jump in July as it printed 27.1 vs 6.1 in June. This is the first monthly increase after five consecutive monthly decreases. There were big improvements in export intentions and residential construction and decent improvements in wage expectations, capacity utilization and profit expectations. There was also a drop in inflation expectations. On the other hand, drops in activity and employment compared to a year ago are of concern.

This week we will have employment data.​

Important news for NZD:

Wednesday:​

• Employment Change​
• Unemployment Rate​

CAD

May GDP came in at 0.2% m/m vs 0.1% m/m as expected. June reading is seen at 0.1% m/m which will make for a positive GDP reading in all three months of Q2. Manufacturing sector lead the gains with 1% followed by public sector. Drops were seen in retail and wholesale trade.

This week we will have employment data.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

BoJ has delivered a 15bp rate cut thus raising the rate to 0.25%. There were plenty of leaks through Japanese media so the move was not unexpected. The decision to increase rate was not unanimous as two members dissented. On the other hand, the decision to reduce scheduled monthly buying of bonds was a unanimous one. The plan is for bond purchases to be tapered by JPY3tn by Q1 of 2026 which would mean reduced bond buying of around JPY400bn per quarter. Members expect underlying inflation pressures to increase gradually. The statements shows that: “Real interest rates are expected to remain significantly negative after the change in the policy interest rate, and accommodative financial conditions will continue to firmly support economic activity”. Provided that economic activity and prices continue to develop as projected BoJ is prepared to further hike rates.

New projections see lower growth in Fiscal Year (FY) 2024 0.6% vs 0.8% as seem in April while CPI ex fresh food was lowered to 2.5% for FY 2024 from 2.8% as previously seen but raised to 2.1% for FY 2025 from 1.9% as projected in April. There were no changes for FY 2026 for either GDP or core CPI.

BoJ Governor Ueda sounded more hawkish at the press conference stating that upside risks to inflation require attention and added that he does not see 0.50% policy rate as a ceiling. Economic indicators to be watched include wages, inflation, service prices and GDP output gap. Ueda added that 0.25% policy rate is still extremely low as with high inflation real rates are deeply negative. Wage increases are becoming more widespread and are supporting private consumption.

According to information published by Ministry of Finance they have spent $36.8bn on BoJ intervention during the month of July. BoJ Quarterly Outlook saw comments that inflation is expected to increase gradually and that wages could rise more than expected which would put upward pressures on inflation and make it deviate fro their baseline scenario. JPY has strengthened massively on the back of carry unwinding trade where investors were selling their high carry investments and buying back JPY.

CHF

SNB total sight deposits for the week ending July 26 came in at CHF458.2bn vs CHF461.3bn the previous week. Deposits are still within a well-established range, though at the bottom of it. Inflation data for the month of July saw headline at 1.3% y/y and core at 1.1% y/y, same as in June. Overall risk off mood in the markets has given CHF a huge boost.​

 

[katetrades]

Forex Major Currencies Outlook (Aug 12 – Aug 16)

RBNZ meeting, inflation data from the US and the UK, retail sales from the US and China, preliminary Q2 GDP from the UK and Japan as well as employment data from the UK and Australia will highlight the news dense week ahead of us.

USD

ISM services for the month of July printed 51.4 vs 51 as expected and thus rebounded back into expansion after surprising 48.8 reading in June. Business activity, employment and new order indexes all rebounded back into expansion as well with new export orders surging to 58.5 from 51.7 the previous month. Supplier deliveries component eased indicating improving conditions. Prices paid index increased again showing that inflation pressures remain persistent. VIX spiked during the week and is still holding above the 20 level. RRP has declined below $300bn during the week indicating that liquidity is getting more scarce but it rebounded and finished the week above the $300bn threshold and the mood in the markets improved with it.

The yield on a 10y Treasury started the week at 3.79%, rose to 4% and finished the week at around 3.94%. The yield on 2y Treasury started the week at 3.89% and reached the high of 4.05%. Spread between 2y and 10y Treasuries started the week at -8bp then managed to disinvert for a very brief period of time and ultimately finishing the week at -11p as curve proceeded to flatten again. The 2y10y is inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 45% while probability of a 50bp rate cut is around 55%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will get inflation and retail sales data.

Important news for USD:

Wednesday:​

• CPI​

Thursday:​

• Retail Sales​

EUR

Final services reading for the month of June was unchanged at 51.9 while composite was revised slightly higher (50.2 from 50.1). German readings were revised up while French readings were revised down but still represent improvement from June due to Olympic Games. Economy is slowing down and barely managing to stay in expansion while prices continue to increase, although at a slowest pace in the last 38 months.

GBP

Final July services PMI were revised up to 52.5 from 52.4 as preliminary reported with composite also revised up to 52.8 vs 52.7. Demand for services from the UK remains strong with business confidence rebounding strongly. The report shows that business activity rose somewhat but new business index had a big jump. Price pressures are easing but are still at elevated levels.

This week we will get employment and inflation data as well as preliminary Q2 GDP reading.

Important news for GBP:

Tuesday:​

• Payrolls Change​
• Unemployment Rate​

Wednesday:​

• CPI​

Thursday:​

• GDP​

AUD

RBA has left the rates unchanged at 4.35% as was widely expected. The statement shows concerns regarding high inflation and dissatisfaction with it coming down slower than expected. Inflation remains too high and it will take some time before the inflation falls back into the targeted range. “Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out“. Restrictive policy is needed until RBA is confident enough that inflation is moving towards the target range. Economic activity has been weak and economic outlook is uncertain.

RBA Governor Bullock stated in the press conference that progress on bringing inflation down has been slow and that there are still risks that moving inflation into target range will take too long. She added that rate cut is not in the cards in the short term and added that markets are pricing rate cuts too soon, that it is not what Board is thinking. Inflation developments remain front and center for RBA decision makers. Speaking later during the week Governor Bullock delivered more hawkish remarks saying that they will not hesitate to hike cash rate if needed and that inflation is not expected to be back in the 2-3% range until the end of 2025.

Caixin services PMI for the month of July increased to 52.1 from 51.2 in June and indicated growing divide between services and manufacturing sector. Composite was dragged down to 51.2 from 52.8 due to weakening manufacturing sector. Trade balance data saw smaller surplus in July for the first time since March as the print reported $84.65bn vs $99.05bn in June. Exports were up by 7%, lower than in June due to a drop in auto exports, while imports were up by 7.2% due to stronger copper and auto parts imports. July inflation data saw CPI rise 0.5% y/y vs 0.3% y/y and up from 0.2% y/y in June on the back of rising food prices (1.2% m/m). PPI was unchanged at -0.8% y/y.

This week we will have employment data from Australia and industrial production and retail sales from China.

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​
• Industrial Production (China)​
• Retail Sales (China)​

NZD

Employment report for the second quarter saw employment change up 0.4% q/q after a 0.2% q/q drop in the first quarter. The unemployment rate rose to 4.6% vs 4.7% as expected and at the same time participation rate rose to 71.7% from 71.5% in Q1. Additionally, wages rose 3.6% y/y after rising 3.8% y/y in the first quarter. Wages coming down and labor market hanging better than RBNZ expected should decrease a chance of rate cut and NZD strengthened as a result. Later on during the week RBNZ inflation expectations saw 2-year at 2.03% for Q3, down from 2.33% seen in Q2 while 1-year was at 2.4% for Q3, also down from 2.73% in Q2.

This week we will have RBNZ meeting. No change in policy is expected.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

BoC minutes showed negative view on household spending due to need for people to refinance their mortgages at higher rates which will in turn lower their disposable income. Downsides risks on inflation are now as prominent as upside risks. Wage growth is seen high at around 4% but it is expected to moderate in the future and further rate cuts are likely if inflation continues to decline as projected.

July employment report saw a loss of 2.8k jobs vs increase of 22.5k as expected. June report saw a loss of 1.4k jobs so this is a second consecutive month of job losses. The unemployment rate remained at 6.4% while participation rate plunged to 65% from 65.3% the previous month. Wages have dropped to 5.2% y/y from 5.6% y/y in June which will be welcomed by the BoC as another input that inflation is coming down. Composition of jobs saw 61.6k added full-time jobs and dropped 64.4k part-time jobs. Markets are fully pricing rate cut at the September meeting with some participants seeing even a 50bp rate cut.

JPY

Final July services reading was revised down to 53.7 from 53.9 as preliminary reported still showing a big jump back into expansion after a surprising 49.4 reading in June. The report shows strong domestic demand and increases in new business volumes and employment levels. Firms have been successful in passing out costs to consumers. Composite has printed 52.5, up from 49.7 the previous month. Household spending continued to decline in July with a -1.4% y/y reading but nominal wages rose astonishing 4.5% y/y which helped push real wages into positive territory for the first time in 27 months with a 1.1% y/y increase.

Nikkei has lost 12.4% on Monday for a largest daily decline since Black Monday crash of 1987. On Tuesday, Nikkei managed to rebound 10.2% from the lows created on Monday. On Wednesday BoJ Deputy Governor Uchida stated that they will not continue with rate hikes when markets are unstable and thus brought down JPY as investors sold it heavily. BoJ Summary of Opinions showed hawkish message from July 31 meeting as they see underlying price pressures increasing gradually and the likelihood of achieving inflation target in the second half of fiscal 2025 has increased. Several members see potential to raise “significantly low” policy rate as real rate is at a 25-year low. Additionally, members see neutral rate of “at least around 1%” as medium-term goal.

This week we will get preliminary Q2 GDP reading.

Important news for JPY:

Thursday:​

• GDP​

CHF

SNB total sight deposits for the week ending August 2 came in at CHF453.9bn vs CHF458.2bn the previous week. Sight deposits still within a well-established range. Markets were in full on risk off mode at the beginning of the week with CHF strengthening significantly due to safe haven flows.​

 

[katetrades]

Forex Major Currencies Outlook (Aug 19 – Aug 23)

Powell’s speech at Jackson Hole will be the biggest event of the week ahead of us followed by FOMC minutes, preliminary PMI data from the Eurozone and the UK as well as inflation data from Canada.

USD

July inflation report saw headline number tick down to 2.9% y/y from 3% y/y in June. Expectations were for inflation to remain at 3%. Core number ticked down to 3.2% y/y as expected from 3.3% y/y the previous month. Both readings saw monthly increase of 0.2%. The biggest contributor to decline in inflation were used cars and trucks which saw prices decline by 2.3% m/m followed by airplane fares which saw prices decline by 1.6% m/m. Services less energy rose 0.3% m/m and 4.9% y/y while shelter saw 0.4% m/m increase, up from 0.2% m/m in June and 5.1% y/y increase compared to July of 2024. Disinflationary process continues, that is the story markets are going with and if there is no big deterioration in the labor market Fed is poised to deliver a 25bp rate cut in September.

Retail sales for the month of July rose by 1% m/m vs 0.3% m/m after being flat in June. The biggest increase was seen in motor vehicle and parts dealers which rose by 3.6% m/m followed by electronics and appliance stores with a 1.6% m/m increase. Control group, used for GDP calculation, grew by 0.3% m/m vs 0.1% m/m as expected. Retail sales ex autos and ex autos and gas both showed a growth of 0.4% m/m, coming in higher than expected. Another strong retail sales report reminding us never to underestimate US consumers and adding more credibility to the growing economy.

The yield on a 10y Treasury started the week at 3.94%, rose to 3.97% and finished the week at around 3.89%. The yield on 2y Treasury started the week at 4.06% and reached the high of 4.09%. Spread between 2y and 10y Treasuries started the week at -12bp and finished the week at -17bp as curve proceeded to flatten again. The 2y10y is inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 70% while probability of a 50bp rate cut is around 30%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will have FOMC minutes and Powell’s speech at Jackson Hole that will emphasize inflation coming down, talk about labor market and shed more light on the way Fed will proceed further with rate cuts.

Important news for USD:

Wednesday:​

• FOMC Meeting Minutes​

Friday:​

• Powell Speech at Jackson Hole Economic Symposium​

EUR

August German ZEW survey report results were disappointing. Current conditions plunged to -77.3 from -68.9 in July while a drop to -75 was expected. Expectations component dropped to 19.2 from 41.8 the previous month, much deeper fall than 32 as was expected. Investors have a bleak outlook towards German economy. Second estimate of Q2 GDP was unchanged at 0.3% q/q.

This week we will have preliminary August PMI data.

Important news for EUR:

Thursday:​

• Manufacturing PMI (Eurozone, Germany, France)​
• Services PMI (Eurozone, Germany, France)​
• Composite PMI (Eurozone, Germany, France)​

GBP

Employment report saw ILO unemployment rate shockingly drop in June to 4.2% from 4.4% in May while increase to 4.5% was expected. Questions about validity of data are being raised. Employment change came in at 97.3k 3m/y with July payrolls change showing that the economy added 24k jobs. Wages continued to drop, average at 4.5% 3m/y and ex-bonus at 5.4% 3m/y, which will be warmly welcomed by the BoE. There was a big jump in claimant counts to 135k which just adds to the mixed results of this report.

July inflation data saw headline CPI increase to 2.2% y/y from 2% y/y in June, but smaller increase than 2.3% y/y print as expected. Core CPI was very satisfactory as it fell to 3.3% y/y from 3.5% y/y the previous month while a 3.4% y/y reading was expected. Services inflation showed a big decline as it came in at 5.2% y/y, down from 5.7% y/y in June. Both headline and core came in lower than expected and investors are now giving higher probability to a September cut.

Preliminary Q2 GDP reading came in line with expectations at 0.6% q/q, slightly lower than 0.7% q/q seen in the first quarter with 0.9% y/y compared to 0.3% y/y in the Q1. Services rose by 0.8% while production and construction both declined by 0.1%. Gross capital formation was the biggest contributor to the reading followed by government consumption and household consumption while net trade deducted from the GDP as exports grew by 0.8% while import rose by 7.7%.

This week we will have preliminary August PMI data.

Important news for GBP:

Thursday:​

• Manufacturing PMI​
• Services PMI​
• Composite PMI​

AUD

July employment report showed that the economy added 58.2k jobs vs 20k as expected. This is the second consecutive month of 50k+ jobs added as last month we had 52.2k jobs added. The unemployment rate ticked up to 4.2% due to jump in participation rate to 67.1%. All of the jobs were full-time jobs (60.5k) which just adds to the stellar report. Q2 wage price index show increase of 0.8% q/q, same as in Q1, while increase of 0.9% q/q was expected.

July industrial production from China slipped to 5.1% y/y from 5.3% y/y as seen in June as external demand is weakening which is resulting in less production for imports. Retail sales rose 2.7% y/y slightly beating expectations of 2.6% y/y but strongly rebounding from 2% y/y in June. Although a nice rebound details are not showing strong consumer as spending for cars, jewellery and gold, cosmetics and apparel were all down. National Bureau of Statistics came in with expectations for consumption to increase, CPI to remain relatively stable and PPI to show smaller declines.

NZD

RBNZ has cut Official Cash Rate (OCR) by 25bp to 5.25% as Committee members agreed that some easing of restraints is in order. The statement showed that inflation is moving down in a stable manner and it is seen coming down to targeted range of 1 to 3%. Services inflation remains elevated but it is expected to come down with the rest of inflation components. New rate projections see at least one more 25bp rate cut by the end of the year as December 2024 rate is seen at 4.92% vs 5.65% previously. Rate for September of 2025 is now seen at 4.1% vs 5.4% previously. Members emphasized concerns around growth as as economy is contracting faster than anticipated.

RBNZ Governor Orr expressed his confidence that inflation is back in its targeted band and that it is appropriate to start bringing rates down. He added that members considered a range of of moves, meaning even bigger cuts and that consensus was for a 25bp cut. Incoming data indicates that economy is weakening. Dovish message from the RBNZ confirmed by Orr’s press conference will weigh down on NZD.

This week we will have Q2 retail sales data​

Important news for NZD:

Friday:​

• Retail Sales​

CAD

July building permits showed another huge drop as they fell by 13.9% m/m while expectations were for a 6.6% m/m increase. This makes it a second consecutive month of double digit drops in permits. June wholesale trade showed another decline as it printed -0.6% m/m as expected for a slightly smaller decline than 0.8% m/m in May. Manufacturing sales fell by 2.1% m/m after 0.2% m/m increase in May.

This week we will have inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Preliminary Q2 GDP reading saw bigger than expected rebound. GDP rose by 0.8% q/q and 3.1% y/y while 0.5% q/q and 2.1% y/y increases were expected. Personal consumption rose by 1% q/q, doubling market’s expectation of a 0.5% q/q increase, making it the first positive print since Q1 of 2023. Business investment rose 0.9% q/q as expected while net external demand deducted 0.1pp from the GDP as exports rose by 1.4% while imports rose by 1.7%.

CHF

SNB total sight deposits for the week ending August 9 came in at CHF463.1bn vs CHF453.9bn the previous week. Sight deposits bounced of the bottom of a range and are still within a well-established range.​

 

[katetrades]

Forex Major Currencies Outlook (Aug 26 – Aug 30)

This week we will have inflation data from the US and Eurozone as well as Q2 GDP from the US and Canada with official PMI data from China on Saturday.

USD

Minutes from the last FOMC meeting saw “several” members wanting to deliver rate cut at the current meeting (July) while a “vast majority” of members see September rate cut as appropriate. Members want more evidence that inflation is sustainably falling to their 2% target. NFP revision for the Q1 saw 818k less jobs.

Fed Chair Powell delivered a dovish message at the Jackson Hole meeting. He stated that "The time has come for policy to adjust. The direction of travel is clear". Powell mentioned that upside risks to inflation declined and shifted focus to the labor market, the second part of their dual mandate. Rate cuts are coming but whether it will be a 25bp or a 50bp cut will depend on the incoming data, particularly on August NFP number that will be published on September 6. If we get a weak headline number and another tick up in the unemployment data we could see a 50bp rate cut. Powell has channeled its inner Draghi by saying that they will do whatever it takes to protect the labor market.

The yield on a 10y Treasury started the week at 3.89%, rose to 3.91% and finished the week at around 3.81%. The yield on 2y Treasury started the week at 4.06%, reached the high of 4.09% then fell below 4% during the week. Spread between 2y and 10y Treasuries started the week at -17bp and finished the week at -9bp as curve proceeded to steepen. The 2y10y is inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 64% while probability of a 50bp rate cut is around 36%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will have a second estimate of Q2 GDP and Fed’s preferred inflation metric PCE.

Important news for USD:

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

Preliminary PMI data for the month of August saw divide between sectors intensify further. Manufacturing declined to 45.6 from 45.8 in July as both German and French readings came in much weaker than expected at 42.1. Services printed 53.3, up from 51.9 the previous month, helped by Paris Olympics which catapulted French services to 55. Composite managed to improve to 51.2 from 50.2 in July with French reading returning to expansion with a 52.7 print while German reading fell deeper into contraction with a 48.5 reading. The report notes that although there was increase in prices in manufacturing sector, input costs in the services sector rose at a slowest pace in over three years. This data point should be welcomed by the ECB. Another data point that will make ECB happy is negotiated wage growth which eased to 3.55% in Q2 after a surge of 4.74% in Q1. Inflation pressures from the demand side will subside. Both final headline and core CPI numbers for the month of July were unchanged at 2.6% y/y and 2.9% y/y respectively.

This week we will have preliminary August CPI which is expected to increase on the back of base effects.

Important news for EUR:

Friday:​

• CPI​

GBP

Preliminary August PMI data showed manufacturing improve to 52.5 from 52.1 in July while services rose to 53.3 from 52.5 the previous month and thus lifted composite to 53.4 from 52.8 in July. The report highlights improvements in job creation and lower inflation as inflation pressures in services sector moderated and input prices fell to the lowest levels seen in over three-and-a-half years.

AUD

RBA meeting minutes had many hawkish moments in them. First, we saw members discuss rate hike at their August meeting but decided to keep cash rate on hold as it would bring better risk balance. Second, members expressed that cash rats will have to stay steady for an “extended period”. Lastly, they have agreed that it is unlikely that we will see rate cuts in the short term. Members now see increasing risks that inflation will not return to target in a reasonable time frame and they are prepared to further hike rates if inflation risks “materially” increase.

PBoC has decided to leave 1-year and 5-year LPRs unchanged at 3.35% and 3.85% respectively as was widely expected. 1-year LPR is used as a benchmark for most new and outstanding loans while 5-year LPR is used as a benchmark for mortgages. As a reminder, both rates were cut by 10bp last month in an attempt to loosen financial conditions and boost economic activity.

NZD

Second dairy auction for the month of August saw a jump in prices by 5.5% led by increase of 7.2% for whole milk prices. This is a third consecutive auction of rising dairy prices. Retail sales for the Q2 fell by more than expected with headline number printing -1.2% q/q and -3.6% y/y vs 0.4% q/q and -2.4% y/y in the Q1. Core retail sales dropped by 1% q/q after increasing by 0.4% q/q in the previous quarter.

CAD

July CPI data showed inflation continuing to decline. Headline CPI printed 2.5% y/y as expected, down from 2.7% y/y in June. All three core measures also showed declines with median printing 2.4% y/y down from 2.6% y/y, common at 2.3% y/y, down from 2.4% y/y and trim at 2.7% y/y down from 2.9% y/y the previous month. The inflation report showed that price drops were broad based and with BoC firmly on a rate cutting path this just cements another rate cut in September.

This week we will have Q2 GDP data.

Important news for CAD:

Friday:​

• GDP​

JPY

Preliminary August PMI saw improvements across all three metrics. Manufacturing came in at 49.5 vs 49.1 in July while services printed 54 after a 53.7 reading the previous month. This helped push composite to 53 from 52.5 in July. Digging into the details of report we saw strong output and new orders for the economy while new export orders showed stronger decline indicating weak domestic demand for Japanese products. Employment index showed weaker growth for the services sector but there was stronger growth in manufacturing sector. On the inflation front output prices showed weaker inflation with inflation dropping to the lowest level since November of last year while input prices showed stronger inflation.

CPI for the month of July for the country of Japan as a whole saw headline print unchanged at 2.8% y/y for the third straight month. Ex fresh food component ticked up to 2.7% y/y as expected while ex fresh food, energy component declined to 1.9% y/y from 2.2% y/y in June. This is the first time that category is below 2% in over twenty months. BoJ Governor Ueda spoke in front of the parliament and stated that fears regarding US economy were the main reason for drops in the market. He added that decision on the July rate hike was appropriate given the economic circumstances but the future path of monetary policy remains uncertain. Ueda mentioned that real rates will remain negative and that will help support the economy.

CHF

SNB total sight deposits for the week ending August 16 came in at CHF464.9bn vs CHF463.1bn the previous week. Another week of increases but not out of the ordinary as deposits remain within well-established range, moving further from the bottom of the range.​

 

[katetrades]

Forex Major Currencies Outlook (Sep 2 – Sep 6)

BoC meeting, rate cut fully priced in, NFP and employment data from Canada, ISM PMIs as well as Q2 GDP data from Australia and Switzerland will highlight the shortened week ahead of us. Be mindful that Labor day is on Monday, liquidity will be lower which could lead to increased volatility.

USD

Second reading of Q2 GDP saw it improve to 3% annualized from 2.8% annualized as preliminary reported. Consumer spending and private investment were the main culprits to the upward revision as they printed 2.9% and 7.5% respectively. PCE data for the month of July saw both headline and core numbers unchanged at 2.5% y/y and 2.6% y/y respectively while markets expected ticks up to 2.6% y/y and 2.7% y/y respectively. On a monthly basis headline number rose by 0.2%, 0.161% when calculated to the third decimal, which is in line with annual inflation printing 2%. Personal spending was up 0.5% m/m while income rose by 0.3% m/m.

The yield on a 10y Treasury started the week at 3.80%, rose to 3.87% and finished the week at around 3.91%. The yield on 2y Treasury started the week at 3.92%, reached the high of 3.96%. Spread between 2y and 10y Treasuries started the week at -11bp and finished the week flat as curve proceeded to disinvert. The 2y10y was inverted for over 788 days. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 68% while probability of a 50bp rate cut is around 32%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will have ISM data and NFP on Friday. With Fed fully shifting their attention to the labor market this report will be closely watched and may provide increased volatility. Headline number is seen coming at around 100k with the unemployment rate remaining at 4.3%.

Important news for USD:

Tuesday:​

• ISM Manufacturing PMI​

Thursday:​

• ISM Services PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

Final Q2 GDP reading for Germany saw it contract by printing -0.1% q/q, down from 0.2% q/q increase in Q1 due to weak private consumption and a big drop in construction activity. Investments and net exports were also a drag on GDP while government consumption contributed positively. The economy grew by 0.3% y/y. Final French Q2 GDP reading was revised lower and showed a 0.2% q/q growth, down from 0.3% q/q in the first quarter and 1% y/y vs 1.5% y/y in Q1. Household consumption improved but there were bigger drops in government consumption and investment, especially in construction.

Preliminary CPI for the month of August dropped to 2.2% y/y from 2.6% y/y in July. Core inflation ticked down to 2.8% y/y from 2.9% y/y the previous month. German French CPI readings dropped to 1.9% y/y with German monthly reading printing -0.1%. Spanish CPI plunged to 2.2% y/y from 2.8% y/y the previous month. A combination of lower growth and lower inflation is perfect mix for a September rate cut that is now fully priced in.

GBP

With no important news concerning UK economy pound has continued to strengthen on the back of recent positive data, namely PMIs. Additionally, BoE is seen pausing at their September meeting which pushed GBP even higher, causing Cable make new highs for the year.

AUD

CPI data for the month of July saw headline print decline to 3.5% y/y from 3.8% y/y in June. A smaller than expected decline caused some buying in AUD but when we look at the core measures we get a much brighter picture of inflation. Trimmed mean fell to 3.8% y/y from 4.1% while CPI ex volatile items and travel fell to 3.7% from 4% the previous month. Reminder that inflation is still above the targeted range of 2-3% and that monthly readings do not encapsulate full inflation basket, as quarterly CPI print does, but the trend down is clear and RBA will take joy in today’s data.

This week we will get Q2 GDP data.

Important news for AUD:

Wednesday:​

• GDP​

NZD

ANZ business survey for the month of August showed business outlook jumping and reaching 50.6 vs 27.1 in July. The 50.6 print represents a 10-year high! Own activity outlook jumped to 37.1 from 16.3 with big jumps seen in investment intentions and residential construction. Pricing intentions continued to increase which casts a small shadow on the report. Ease of credit component jumped to a 9-year high as a result of expected rate cuts with inflation expectations falling below 3% for the first time in three years.

CAD

Q2 GDP came in at 0.5% q/q, up from 0.4% q/q in Q1 and 2.1% y/y, also up from 1.8% y/y in the previous quarter. June GDP came in flat vs 0.1% m/m as expected. Services were up 0.1% as expected but manufacturing collapsed and dropped -1.5% vs 1% as expected. Advanced reading for July also sees flat GDP which will not bode well for Q3 GDP.

This week we will have BoC meeting and employment data. Another 25bp rate cut is expected with inflation continuing to decline and growth is missing.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

August inflation data for the Tokyo area saw headline number rise to 2.6% y/y from 2.2% y/y in July. Ex fresh food component rose to 2.4% y/y from 2.2% y/y the previous month with ex fresh food, energy component ticking up to 1.6% y/y from 1.5% y/y in July. The unemployment rate surprised to the upside in July and jumped to 2.7% from 2.5% in June. Inflation heading north from the 2% target will keep BoJ on policy normalization path in Q4.

CHF

SNB total sight deposits for the week ending August 23 slipped to CHF463.6bn from CHF464.9bn the previous week. One more miniscule change as deposits remain in well-established range.

This week we will get Q2 GDP and inflation data.

Important news for CHF:

Tuesday:​

• GDP​
• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Sep 9 – Sep 13)

ECB meeting where are rate cut is fully prices in, inflation from the US and China, final Q2 GDP reading from Japan as well as industrial production and consumption data from China will highlight the week ahead of us. First presidential debate between Harris and Trump will be held on Tuesday.

USD

ISM manufacturing PMI for the month of August printed 47.2 after 46.8 in July and thus made first improvement after four consecutive declines. Expectations were for a bigger rebound, to 47.5 and manufacturing remains in contraction for the fifth straight month. New orders fell to lowest since May of 2023 and production continued to decline with both falling deeper into contraction. Prices paid increased but are still below the six month trend indicating that inflation is coming down.

August ISM services PMI printed 51.5, a tick up from 51.4 in July, higher than 51.1 as expected. New orders improved and moved further into expansion while there were small drops in business activity and employment components, they are all in expansion. Prices paid component ticked up.

August NFP report showed economy added 142k jobs vs 160k jobs as expected. Previous month’s reading was revised down to 89k. The unemployment rate ticked down to 4.2% while participation rate remained stable at 62.7%. Wages came in strong as they rose by 0.4% m/m and 3.8% y/y. Weekly hours ticked up to 34.3. Private payrolls increased by 118k vs 139k as expected. The markets were split 50/50 whether Fed will deliver a 25bp rate cut or a 50bp rate cut but started leaning more toward the 25bp as more details were scrutinized.

The yield on a 10y Treasury started the week at 3.91%, rose to 3.94% and finished the week at around 3.72%. The yield on 2y Treasury started the week at 3.92%, reached the high of 3.95%. Spread between 2y and 10y Treasuries started the week at -1bp and finished the week at 6bp as curve proceeded to disinvert and moved into positive territory. The 2y10y wss inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 67% while probability of a 50bp rate cut is around 33%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will have inflation data.

Important news for USD:

Wednesday:​

• CPI​

EUR

Final manufacturing PMI for the month of August was revised up to 45.8 from 45.6 as preliminary reported and was unchanged compared to the July reading. New orders are slowing down further and business conditions are continuing to deteriorate. The report shows that both input and output prices increased which will keep inflation pressures elevated and it will not be welcomed by the ECB. Services PMI was revised down to 52.9 from 53.3 due to miss in Italian reading and downward revision to German reading. Olympic games were responsible for strong French reading and that propelled overall reading higher than in July. Composite was also revised down, 51 vs 51.2 as preliminary reported, but still stronger than 50.2 the previous month. Final Q2 GDP number was revised down to 0.2% q/q from 0.3% q/q shown in first and second readings and this will further vindicate next week’s rate cut.

This week we will have ECB meeting. Rate cut is fully priced in but future rate cut path is not clear. We will get new economic projections that will determine the path of rate cuts in the future. If inflation and growth are seen to be lower than in June projection we can expect further rate cuts in December.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

August final manufacturing PMI was unchanged at 52.5 which is a new 26-month high. Unlike in the Eurozone, UK manufacturing sector is experiencing strong growth in employment, output and new orders. The report also mentions that domestic market is the driver of strength while foreign demand is struggling. Services PMI was revised higher to 53.7 from 53.3 as preliminary reported with new business growing at a stronger pace. The rate of input cost pressures has continued to decline and that is something that will keep BoE happy. Composite was also revised up and printed 53.8 vs 53.4 as preliminary reported.

AUD

Q2 GDP print saw growth of 0.2% q/q same us upwardly revised Q1 print, lower than 0.3% q/q as expected and 1.5% y/y vs 1.3% y/y in the previous quarter. Household consumption was weak and decreased by 0.2% as there was a big drop in discretionary spending. Government consumption rose by 1.4% Net exports contributed positively to the reading but terms of trade fell by 3%. Household saving to income ratio remained at 0.6%. Growth is chugging along spurred by government spending, consumer is hurting due to high prices. RBA is still primarily focused on bringing inflation down and they plan to keep rates unchanged, but if growth and consumer start to suffer more we could see them changing their tune and going for the rate cuts.

RBA Governor Bullock stated that it is premature to think about rate cuts as they are in no position to cut rates in the near-term as they need to see further results on inflation. She reiterated bank’s commitment to bringing inflation down to target adding that there is uncertainty around outlook with risks on both sides. She also added that labor market remains strong but it is expected to ease gradually and characterized slightly higher AUD as positive for fighting inflation.

August Caixin manufacturing PMI returned to expansion with a 50.4 reading after it surprisingly dropped into contraction last month with a 49.8 reading. Over the weekend official manufacturing PMI slipped further into contraction with a 49.1 reading. Caixin report showed that new orders continued to grow while new export orders recorded first decline in almost a year. There was a decline in both input and output prices with lower prices for raw materials and sales pressures keeping them subdued.

This week we will get inflation, industrial production and consumption data from China.

Important news for AUD:

Monday:​

• CPI (China)​

Saturday:​

• Industrial Production (China)​
• Retail Sales (China)​

NZD

First dairy auction of September saw GDT index drop by 0.4%. This breaks a streak of three consecutive auctions with rising dairy prices. The main culprit was a drop in whole milk powder prices.

CAD

BoC has delivered another 25bp rate cut as was widely expected and brought overnight rate to 4.25%. The accompanying statement notices that the economy grew in Q2 as projected but that growth waned in June and July. Labor market continues to slow down. Inflation continues to come down and is nicely within bank’s targeted range. Shelter and some other services are keeping inflation high while excess supply in the economy puts downward pressure on prices. The statement shows that “Governing Council is carefully assessing these opposing forces on inflation.” and concludes with “Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook.”

Employment report for August showed employment increase by 22.1k vs 25k as expected. Past two reports saw job losses so this is a positive sign. Unfortunately, positive signs stop there. The unemployment rate jumped to 6.6% from 6.4% making it the highest in seven years. Participation rate ticked up to 65.1% but not enough to soften the blow of jump in the unemployment rate. Wages have risen by 4.9% y/y compared to 5.2% y/y in July. The report shows that all of the jobs added were part-time (65.7k) while full-time jobs recorded a big decline (-43.6k). BoC will remain firmly on a rate cutting path after this report.

JPY

Final manufacturing PMI for the month of August was revised up to 49.8 from 49.5 as preliminary reported thus getting closer to the expansion territory. The report shows that output returned into expansion. New orders recorded softer fall while new export orders declined at a much faster pace indicating slower demand from abroad. Employment improved along with input prices which reached a new 16-month high due to increase in prices of raw materials and weak JPY. Services were revised down to 53.7 making them unchanged from July. New orders and employment continued to grow but at a slower pace. Composite was lifted to 52.9 from 52.9 the previous month.

CAPEX data for the second quarter increased by 7.4% y/y compared to 6.8% y/y increase in the first quarter, but markets were expecting a 9.9% y/y increase. Nevertheless, an improvement in CAPEX is bringing optimism that Japan economic growth will be driven by domestic demand. The improvement should be visible in next week’s final Q2 GDP print. July wages rose by 3.6% y/y, lower than 4.5% y/y increase seen in June but when adjusted for inflation real wages rose by 0.4% y/y for the second consecutive month of real wage increases. Governor Ueda stated that positive real wages and spending are necessary for inflation to be sustainable at 2% so this data point can guide BoJ towards policy normalization. Household spending grew by 0.1% y/y improvement over -1.4% y/y reading the previous month, but smaller than expected 1.2% y/y growth.

This week we will have final Q2 GDP reading.

Important news for JPY:

Monday:​

• GDP​

CHF

SNB total sight deposits for the week ending August 30 came in at CHF456.7bn vs CHF463.6bn the previous week. Deposits have been in the range from 450 to 467 since mid-May. August CPI report saw headline number dropping to 1.1% y/y from 1.3% y/y in July while a 1.2% y/y print was expected. Core reading remained unchanged at 1.1% y/y. Q2 GDP data saw improvement as it printed 0.7% q/q vs 0.5q/q in Q1 and 1.8% y/y vs 0.6% y/y in the previous quarter. SNB has ample room to cut and a 25bp rate cut is expected at their September meeting.​

 

[katetrades]

Forex Major Currencies Outlook (Sep 16 – Sep 20)

Fed, BoE and BoJ meetings, with Fed cutting while other two staying on hold, coupled with inflation data from the UK and Canada, consumption data from the US and employment data from Australia will highlight the massive week ahead of us.

USD

August CPI report saw headline number at 2.5% y/y vs 2.6% y/y as expected, down from 2.9% y/y in July. This is the lowest headline CPI number in 36 months. Core number came in unchanged at 3.2% y/y with core inflation increasing 0.3% m/m vs 0.2% m/m as expected. Airline fares surprised to the upside as they rose 3.9% m/m while shelter rose 0.5% m/m and 5.2% y/y and was the biggest contributor to the reading. Supercore printed uncofmortably high 4.5% y/y. Prices of used cars dropped by 1% m/m. With core inflation staying unchanged and shelter moving in the opposite direction this report gives a big nudge to a 25bp rate cut at next week’s meeting.

The yield on a 10y Treasury started the week at 3.71%, rose to 3.76% and finished the week at around 3.66%. The yield on 2y Treasury started the week at 3.65%, reached the high of 3.71%. Spread between 2y and 10y Treasuries started the week at 6bp and finished the week at 9bp as curve remained upward slopping. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 53% while probability of a 50bp rate cut is around 47%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will have retail sales and FOMC meeting. Markets are almost evenly split between a 25bp rate cut and a 50bp rate cut. We are leaning more towards the 25bp rate cut due to still good labor market as well as low unemployment claims and think that Fed can speed up rate cuts at following meetings if necessary. However, we feel that market pricing almost 10 cuts by the June of 2025 is too much. Additionally, we will also get new Summary of Economic Projections.

Important news for USD:

Tuesday:​

• Retail Sales​

Wednesday:​

• Fed Interest Rate Decision​

EUR

ECB delivered 25bp rate cut as expected and lowered deposit rate to 3.50%. Inflation data has come in as broadly expected but we should see some increase in the second half due to base effects. There were no changes to headline inflation, as it is seen averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. There were upward changes to core inflation projections, due to higher services inflation and it is now seen at 2.9% in 2024, 2.3% in 2025 and coming down to the 2% in 2026. GDP was revised lower and is seen at 0.8% in 2024, 1.3% in 2025 and 1.5% in 2026. The statement reiterated data-dependent and meeting-by-meeting approach.

At the press conference ECB President Lagarde clarified that it was a unanimous decision on rates. She added that there is no predetermined path on future rate cuts noting that recover is facing hardships, there are downside risks to growth, but it will strengthen in time thanks to rising real incomes. On the inflation front she stated that September inflation reading will be low due to base effects on energy, but then inflation will rise in Q4, also due to base effects. Inflation expected to come down to 2% by the end of 2025. She noted that R* is probably higher than it was and emphasized data-dependence, they are looking at a wide range of data and are not swayed by the single data point.

GBP

Employment report saw August payrolls change drop by 59k with negative revisions to the previous month’s reading. July unemployment rate ticked down to 4.1% and employment change for the 3m/y showed a huge jump of 265k, doubling expected 132k. Wages continued to slide with average weekly earnings printing 4% 3m/y, the lowest in two years, vs 4.1% 3m/y as expected and down from 4.6% 3m/y in June. Ex bonus category came in at 5.1% 3m/y, as expected, down from 5.4% 3m/y the previous month. Employment change beating estimates, unemployment rate and wages coming down while payrolls declining. BoE should take comfort in falling wages.

July GDP came in flat vs 0.2% m/m increase as expected. Services contributed by 0.11% to the GDP but all of the production measures declined hard with manufacturing leading the way with a 1% drop m/m. Additionally, all of the measures, including services, missed on expectations. This makes second consecutive month of flat GDP readings and Q3 GDP is starting on the weak side.

This week we will get inflation data and BoE meeting. BoE is expected to pause at this meeting and then deliver next rate cut in Q4.

Important news for GBP:

Wednesday:​

• CPI​

Thursday:​

• BoE Interest Rate Decision​

AUD

Inflation data for the month of August saw CPI increase to 0.6% y/y from 0.5% y/y in July while a 0.7% y/y print was expected. Food prices rose for the first time in more than a year and were the main cause for increase in inflation while non-food components declined m/m and showed weaker consumer confidence. PPI, on the other hand, plunged as it printed a -1.8% y/y reading after a -0.8% y/y decline seen the previous month. Trade surplus increased to $91.02bn as exports rose 8.7% y/y while imports increased by just 0.5% y/y indicating weak domestic demand. Auto exports growth is now at 20% YTD while semiconductors export growth is at 22% YTD.

This week we will get employment data.

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

Electronic card retail sales for the month of August showed an increase of 0.2% m/m after a decline of 0.1% m/m the past month and decline of 2.9% y/y after a much bigger decline of 4.9% y/y in July. Card retail sales comprise of almost 70% of core retail sales.

This week we will get Q2 GDP data.

Important news for NZD:

Thursday:​

• GDP​

CAD

BoC Governor Macklem stated that bank has to focus on risk management. They need to balance upside risks to inflation with downside risks to economic growth. He concentrated his comments around trade stating that trade disruptions increase variability of inflation adding that global trade growth has slowed down which causes a risk to Canadian economy. Macklem hinted that there is a possibility of a 50bp rate cut in October and markets took it and pushed CAD lower.

This week we will get inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Despite a strong CAPEX reading for the second quarter, Q2 GDP was revised down to 0.7% q/q and 2.9% y/y from 0.8% q/q and 3.1% y/y as preliminary reported. Private consumption and net exports were revised down and thus brought GDP with it.

This week we will have BoJ meeting. No changes to the rate are expected at this meeting as markets see next hike coming in December.

Important news for JPY:

Friday:​

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending September 6 came in at CHF455.9bn vs CHF456.7bn the previous week. A small decline, but still within well-established range.​